UPDATE 1-White House defends deficit, wrong time for austerity

* Obama budget defers significant action on deficit

* Now not the time for austerity - White House's Lew

By Alister Bull

Washington, Feb 12 (Reuters) - President Barack Obama's chief of staff, Jacob Lew, defended his boss on Sunday for failing to cut the U.S. budget deficit, making the election-year argument that now was the wrong time to impose austerity measures that could sap an economic recovery.

Republicans have slammed Democrat Obama for laying out a budget plan that raises taxes on the rich, which they view as designed to help his campaign for re-election on Nov. 6, rather than controlling the growth of the U.S. deficit and debt.

But Lew, speaking on Sunday television news shows on the eve of Obama's 2013 budget proposal to Congress, said the plan would outline $4 trillion in 10 year deficit reductions, alongside measures to deliver essential suport to near-term growth.

"I think there is pretty broad agreement that the time for austerity is not today," Lew, Obama's budget chief until few weeks ago, told NBC's "Meet the Press".

This was also why Congress ought to pass a payroll tax cut extension before it expires in two weeks' time, he said.

Obama's budget will request over $800 billion in multi-year spending for job creation and infrastructure programs, including tax breaks for companies and individuals worth more than $300 billion in 2012 if passed into law.

Congress is free to ignore the president's proposals and Republicans have said Obama's budget will be dead on arrival.

"Jack Lew did the full tour of all five Sunday shows this morning, failing on each show to articulate how their upcoming budget would lift the crushing burden of debt," said Gerrit Lansing, spokesman for House of Representatives Budget Committee Chairman Paul Ryan, a Republican.

The budget, which will delivered to Congress on Monday, projects the deficit at $1.33 trillion this fiscal year or 8.5 percent of gross domestic product, declining to $901 billion, or 5.5 percent of GDP, in 2013.

DEFICIT PLEDGE

Obama pledged in 2009 to have halved the deficit by next year, and his failure to deliver has provided Republicans with ammunition as they seek to deny him a second term by portraying him as old style tax and spend liberal.

"On this issue - the debt - this president has been completely AWOL. Republicans have had to fight tooth and nail for every dime in savings we've secured," Mitch McConnell, the top Republican in the U.S. Senate, said on Thursday.

Lew, however, argued that Obama's deficit promise was made before he truly understood the depth of the recession he had inherited from Republican President George W. Bush.

"When we took office, the economy was falling so fast that the first thing we had to do was put a bottom in ... It cost money in terms of lost revenue and slower economic growth. We're on track now," Lew told ABC News.

The White House said the funding gap will shrink to 2.8 percent of GDP by 2018, below the 3 percent/GDP threshold that credit rating agencies and investors see as the goal to stabilize the growth in national debt as a share of the economy.

Lew said Congress and the administration are working to see if a compromise can be reached over extending the payroll tax cut for 160 million Americans, which will expire on Feb. 29 unless Congress acts.

"They have two weeks now to do the important business so they don't get in the way of our economic recovery," he told NBC. The White House estimates extending the payroll tax cut for all of 2012 could add a percentage point to growth this year.