The White House projections were immediately criticized by both Democratic and Republican lawmakers who said the numbers may gloss over the full extent of the fiscal deterioration and failed to include the full Iraq and Afghanistan war costs.

With the economy teetering on the brink of a recession, President Bush said the deficit would reach US$410 billion for the budget year 2008 that ends on Sept 30 and US$407 billion for fiscal 2009 that begins on Oct 1.

The budget makes military spending and the Iraq war its centrepiece, proposing a 7.5 per cent increase for the Pentagon to US$515 billion.

On top of that President Bush also sought another US$70 billion for the conflicts in Iraq and Afghanistan but that money is only expected to cover those costs for part of 2009. The administration said it would ask for more Iraq money later.

'The budget protects America and encourages economic growth. Congress needs to pass it,' President Bush said after meeting with his Cabinet. The grimmer budget outlook will be inherited by the next president, who succeeds President Bush in January 2009.

Big budget problems later
While the near-term deficits are a concern, many budget experts are bracing for much more serious fiscal problems in coming years as the baby boom generation's retirement causes spending on health care and other entitlements to explode.

The blueprint also assumes deep cuts in many popular domestic programs such as highway funds and heating assistance for the poor, in addition to wringing out billions in savings from the Medicare program for the elderly and disabled.

While many - if not most - of the priorities of the Bush budget will be jettisoned by the Democratic-led US Congress, the unveiling of the document is sure to trigger a new round of sparring over Bush's fiscal policies and his economic legacy.

Democrats have hammered President Bush for presiding over a shift to deficits after taking office amid budget surpluses, pointing to a jump in the national debt to US$9 trillion from about US$5.6 trillion when Bush took office in January 2001.

'Far from proposing a plan to fix the budget, the Bush administration proposes policies that worsen it, and with little compunction, leaves the consequences for the next administration and future generations,' said House Budget Committee Chairman John Spratt, a South Carolina Democrat.

While some Republican legislators welcomed the budget, New Hampshire Senator Judd Gregg, the senior Republican on the Senate Budget Committee, was scathing, saying it lacked credibility.

Budget as 'academic exercise'
'This budget must have been viewed by them more as an academic exercise than a serious exercise because it's not a serious budget,' Mr Gregg said. 'There are even more games than usual.'

The deficits of the next two years would be more than twice the size of the US$162 billion gap of 2007 and approach the US$413 billion all-time high for the deficit hit in 2004.

The bigger deficits, caused in part by weakening revenues amid a slower economy, would reverse a trend of the past three years in which annual deficits declined.

A promised US$150 billion stimulus package of tax rebates meant to jolt the economy away from recession will also add to the deficit. Funding for the Iraq war is another source of red ink.

President Bush said despite the worsening near-term deficit, it would still be possible to balance the budget by 2012 while making permanent tax cuts he made in 2001 and 2003.

But lawmakers gave numerous reasons why they thought his budget masked the true fiscal woes.

They noted it only includes a portion of the expected funding for the Iraq and Afghanistan wars in 2009 and the economic forecasts underlying the figures are above those of private-sector economists. The budget also assumes costs savings in areas such as Medicare that are politically sensitive for both Democratic and Republican lawmakers.

The proposed limits on Medicare spending were deemed 'indefensible' by Robert Hayes, president of the Medicare Rights Centre.

Mr Hayes said the proposals would harm the elderly and 'take a wrecking ball to many essential hospitals across the country.'

One area in which President Bush sought more spending was combating illegal immigration, a popular Republican cause. He sought 17 per cent more for customs and immigration enforcement, including funds for a border fence and more border patrol agents. -- REUTERS