Bush budget would add $100-billion to deficit

BARRIE MCKENNA

With files from Reuters

WASHINGTON -- Even top Republicans acknowledged it's just a starting point as George W. Bush unveiled a $2.77-trillion (U.S.) budget for 2007 that includes record defence spending and cuts to Medicare and key domestic programs.

The plan laid out yesterday by the U.S. President does not make a dent in the U.S. deficit, which the White House now says will swell by $100-billion to a record $423-billion this year. Mr. Bush has promised to halve the deficit by 2009.

But the budget that eventually passes will almost certainly look a lot different -- particularly as Congress looks ahead to mid-term elections in November.

The spending cuts proposed by Mr. Bush exclude hurricane Katrina reconstruction and the wars in Iraq and Afghanistan. Mr. Bush plans to deal with those with separate appropriation requests that could add nearly $100-billion to the budget. He also called on Congress to extend all of his previous tax cuts, which are due to expire. Keeping those cuts would cost $1.35-trillion over the next decade in lost revenue.

Mr. Bush is also proposing a controversial new tax break aimed at encouraging more consumers to set up private health savings accounts and to write off more of their health care premiums.

Meanwhile, Medicare and other entitlement programs would be cut by $65-billion over five years. In addition, nine of 15 cabinet agencies would face budget cuts.

"My administration has focused the nation's resources on our highest priority -- protecting our citizens and our homeland," Mr. Bush said in his budget message.

Mr. Bush proposed a $439.3-billion defence budget for 2007. There is also a hefty increase in spending on homeland security.

Democrats attacked the White House budget plan as fiscally irresponsible because it would extend tax cuts for wealthier Americans, while harming programs for the poor and elderly.

Senator Kent Conrad, the top Democrat on the Senate Budget Committee, said the budget was misleading because it ignores the rising cost of the Iraq war.

"It represents the same reckless fiscal course the Bush administration has followed for the last five years," Mr. Conrad said.

Senate Minority Leader Harry Reid said that, "After driving the nation into a fiscal mess, the president is asking our seniors, our students, and our families to clean it up while the wealthy special interests reap the rewards."

The Bush administration now projects that the economy will grow 3.3 per cent in 2007, compared with 3.4 per cent forecast for this year.

On the deficit, Mr. Bush expresses optimism that the expanding economy will soon put it on a downward track. After hitting a new high in 2006, the administration says it expects the deficit to fall to $354-billion in 2007.

Mr. Bush still insists he will make good on his promise to shrink the deficit to about 2.25 per cent of gross domestic product, down from nearly 4 per cent in 2004.