Record deficit forces cuts in Bush budget

US President George W. Bush proposed a $2.4 trillion election-year budget yesterday that would slash more than 125 government programmes and pledged to cut this year's record deficit in half - a goal even fellow Republicans were sceptical he could achieve.

After inheriting a surplus, Bush has overseen a dramatic worsening of the budget picture. He hopes to improve his fiscal image before the November election by laying out plans to reduce the record $521 billion deficit by a third next year and in half between 2007 and 2009.

To get there, he is asking Congress to terminate 65 major programmes and reduce another 63, reserving the bulk of new federal spending for homeland security and defense.

But hours after unveiling its long-awaited deficit reduction goals, the White House acknowledged it would need up to $50 billion in extra funding for military operations in Iraq and Afghanistan next year - on top of Bush's $400 billion military budget and his 2005 deficit projection.

The White House expects the budget shortfall to total $1.35 trillion through 2009 and government debt to rise from $8.1 trillion to $10.5 trillion, prompting warnings from Democrats that chronic deficits would crowd out private investment, drive up interest rates and slow economic growth.

"We went through a recession, we were attacked and we're fighting a war. These are high hurdles for a budget and for a country to overcome and yet we've overcome them," Bush said of his budget, which would cut funding for about half of the 15 Cabinet-level agencies.

He said he was "confident" his deficit targets would be met, but Democrats and Republicans alike expressed doubts and said they were bracing for a bitter fight that could stretch through the campaign season.

"No one should expect significant deficit reduction as a result of austere non-defense discretionary spending limits. The numbers simply do not add up," said Florida Republican Rep. Bill Young, the House of Representative's chief overseer of federal spending programmes.

William Niskanen, head of the libertarian Cato Institute, called Bush's budget "wishful thinking." Rep. John Spratt of South Carolina, the ranking Democrat on the House Budget Committee, said it was "neither credible nor realistic."

In line with Bush's campaign priorities, the budget's biggest winners will be homeland security with a nearly 10 percent rise and the military with nearly seven per cent.

Defence contractors including Boeing Co. and Northrop Grumman Corp. stand to benefit as Bush's $401.7 billion military budget increases spending on missile defense and on modernising the Army.