Commerce Secretary Malcolm Baldrige said yesterday that next fiscal year's federal deficit will be $20 billion to $30 billion larger than the administration's midyear economic review projected last week.
Baldrige became the first member of President Reagan's Cabinet to declare publicly what many administration officials acknowledged privately when they issued the midyear budget review, which showed a $115 billion budget deficit for fiscal 1983, beginning Oct. 1.
Baldrige's estimate would put the deficit more in line with the $140 billion to $160 billion estimated by the Congressional Budget 0ffice and many private forecasters.
In offering his own somewhat gloomier view of the projections made in the midyear economic review last Friday, Baldrige said he was not trying to put distance between himself and administration policy but simply was stating obvious conclusions about the economy. He pointed out that the midyear review was based on projections several months old.
The administration's official deficit estimates, made Friday, were based on anticipated expansion in the gross national product of 4.5 percent during the second half of 1982. That rate is more than either the CBO or many private economists expect.
Baldrige said he thinks the economy will expand only at about 3 to 3.5 percent in the last six months of 1982, and as a result the fiscal 1983 deficit will be $20 billion to $30 billion larger than projected. This is because slower growth in the economy automatically means lower tax collections and more government spending on such programs as unemployment compensation and welfare.
High interest rates also add to the deficit because the Treasury must pay more on the national debt. Deficit spending forces the government to borrow more money in the credit markets, which makes less available for businesses and consumers to borrow, and forces up interest rates. "Without a decline in interest rates, we will probably not have 4.5 percent expansion ," Baldrige said. "It looks now, because interest rates have not come down enough yet, unless they come down dramatically, the figure of $20 billion or $30 billion is more in the ballpark."
A senior administration official, who briefed reporters on the midyear review last week on condition that he not be identified, also predicted that the fiscal 1983 deficit would be higher than the official projection.
Baldrige and the other administration official explained that the midyear review was based on economic forecasts included in the budget resolution adopted by Congress in June.
Baldrige, who has earned a reputation as one of the more independent and blunt-spoken members of the Reagan Cabinet, said he believes Wall Street already has come to expect the higher deficit figures, rather than those in the official projection.
Baldrige made his statement on "Good Morning America" (ABC, WJLA) and elaborated in an interview.
House Budget Committee chairman James R. Jones,(D--Okla.), also appearing on "Good Morning America," said that economic recovery will occur slower than the administration has predicted. The economy will "rock along as we are now with no particular recovery and it could deteriorate even further," he said.
Reagan, at his press conference last week, acknowledged that the recovery would not occur as quickly as the administration had hoped. Baldrige said yesterday that he believes a rise in consumer spending from the July 1 tax cut and falling interest rates "should lead off the recovery."
"I think there's a reasonably good chance of that happening before the Nov. 2 election," he said. Baldrige acknowledged, however, that unemployment would not fall quickly as the economy picks up steam. And he said the administration is looking for "a slow steady recovery and longer lasting recovery rather than the violent ups and downs" that could cut short the economy's growth.