US President George W Bush has submitted a $2.9 trillion (£1.5 trillion) budget to Congress including almost $700bn in new military spending.

Much of the money is earmarked for the war in Iraq and Afghanistan.

The 2008 budget also sets out plans to curb domestic spending, including $66bn savings over five years from Medicare.

It is the first budget Mr Bush has presented to a Congress dominated by Democrats, who have been strong critics of his fiscal policies.

'Formula'

If congress did approve the request, the US would have spent $661.9bn on combat in Iraq and Afghanistan since the war began, the administration said.

Another area of spending was oil - with $168m to be spent filling strategic stockpiles of crude.

As well as the cuts to Medicare - the health insurance program for 43 million retirees and disabled people - Mr Bush's proposed savings also include $12bn from reducing eligibility to Medicaid - a health program for children and the poor.

"My formula for a balanced budget reflects the priorities of our country at this moment in its history, protecting the homeland and fighting terrorism, keeping the economy strong with low taxes and keeping spending under control," Mr Bush said in a statement.

Debate

He predicted a deficit in the year to October 1 2007 of $244bn and said the country could be in a surplus by 2012.

Senate Budget committee chairman Kent Conrad, a Democrat, was sceptical of the projections.

"The president's budget is filled with debt and deception, disconnected from reality, and continues to move America in the wrong direction," he said.

"This administration has the worst fiscal record in history and this budget does nothing to change that."

Now that the budget has been presented, it will be debated by Congress at length, and is likely to face many changes.

This Federal budget covers spending from 1 October 2007; but in many past years, Congress has failed to reach agreement on the budget before that date.

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