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Swan says US deal is just a first step

David Wroe

Published: January 2 2013 - 3:00AM

Treasurer Wayne Swan has greeted an expected US deal to avoid the ''fiscal cliff'' with lukewarm praise, warning that a divided Washington needs to reach a more comprehensive debt agreement before the danger to the world economy has passed.

As US officials announced that an 11th hour deal had been reached to head off the worst effects of sharp tax rises and deep spending cuts that could have thrown the American economy into recession, Mr Swan said the agreement was not enough.

''While it is welcome to see progress towards a deal in the US, more will need to be done to achieve the enduring deal the world needs,'' he said. ''As the IMF have said, anything short of a deep and wide-reaching resolution will not be good enough this time around.

''We will continue to closely monitor these developments because they have a significant impact on the entire global economy, including Australia and our region.''

The US package included restricting tax rises to people earning more than $US450,000 ($A431,000) and a two-month delay on spending cuts. It was passed on Tuesday (AEDT) by the US Senate but still faced a vote in the House of Representatives.

Australian Treasury officials reportedly believe an even greater risk is the danger Washington will once again bog down in an impasse over the nation's debt.

In mid-2011, the US government came within hours of a catastrophic default after weeks of brinkmanship during which Congress refused to raise the legal limit on government borrowing. The crisis was averted at the last moment but it paved the way to the fiscal cliff.

The combination of tax hikes and spending cuts was designed during the 2011 stand-off in a deliberate effort to create a scenario so dire Democrats and Republicans would be forced to find compromises and strike a deal to reduce the deficit.

Foreign Minister Bob Carr also warned the US deal did not go far enough. As a staunch ally, Australia wanted the US to remain a strong power in the world, he said.

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