The president's plans will increase next year’s already record projected budget deficit to at least $525 billion - or 4.7% percent of Gross Domestic Product (GDP).

But apparently, White House staff are not running around in a panic. This deficit is on a “manageable” level and is unlikely to have detrimental effects on the overall economy, according to a senior administration official on Monday.

Despite the new spending, the administration would still meet its goal of cutting the deficit in half in five years, said the official.

“We believe we remain on track on all counts,” said the unnamed official.

Another official told reporters the administration expected Iraqi oil revenues of $12 billion in 2004 and $20 billion in 2005 and 2006.

The White House is “asking our friends and allies to make substantial contributions toward filling the gap” in Iraq’s reconstruction needs.

Outside help 

Bush’s budget director predicted Iraq would be “an affordable endeavour”. But five months and tens of billions of dollars later, the administration is acknowledging the massive cost of occupying Iraq.

"I don't know that there is much reconstruction to do."

Donald Rumsfeld,
US Defence Secretary, speaking prior to the US invasion of Iraq 

The administration estimated Iraq’s reconstruction needs at $50 billion to $75 billion. The president’s budget request will provide $20 billion and Washington said it plans to seek the rest from other countries, international lending agencies and Iraqi sources.

“Our estimate is based on what we think is necessary to put the economy in the kind of shape where it…can take off and generate substantial revenues without outside assistance,” said an administration official.

Democrats have grabbed on record US budget deficits in the run-up to next year’s presidential election.

The issue, however, has yet to pick up steam among voters like high unemployment.

Assurances

The $87 billion package would include between $50 billion to $60 billion in actual fiscal 2004 outlays, raising next year’s projected $475 billion deficit to at least $525 billion.

A senior administration official said that deficits had gone as high as 6% of GDP in the past 20 years and there was no damage at 4.2%.

The administration had no plans to ask for additional military or reconstruction resources next year beyond the $87 billion.

The new spending would not be offset by cuts elsewhere in the budget or by tax increases. The White House wants flexibility to determine how to allocate the resources - a demand Congress has rejected in the past, said the official.