Bush message is you can have the cake and eat it

In his first address to Congress President George W. Bush was last night planning to tell the American people they could have their cake and eat it - tax cuts worth $1.6 trillion and a reduction of the national debt by $2 trillion.

In a chamber packed with members of both Houses, diplomats and journalists, Mr Bush was determined to reclaim the news agenda dominated by his predecessor for the last few weeks. Among those in attendance was the Minister for Foreign Affairs, Mr Cowen.

Playing with the prospect of a 10-year surplus of $5.6 trillion, Mr Bush was expected to tailor his speech to surveys which suggest that the electorate would prefer to see problems in education, pensions and healthcare remedied ahead of massive tax cuts, and to surprisingly popular Democratic calls for the surplus to be used to reduce the national debt.

Not abandoning his cherished across-the-board tax cuts, however, Mr Bush was expected to say that Americans can have it all.

Mr Bush's budget, to be presented to Congress next week, will set out a strategy for reducing the national debt from its current $3.4 trillion level to $1.2 trillion in a decade.

His officials have been saying that to go any further would require buying back debt at more than its face value because of the way in which the debt is structured.

But to keep spending down to the 4 per cent increase he has promised while providing for tax cuts and extra money for education and defence, the President will have to cut some programmes very significantly - energy is set to lose some $700 million.

Mr Bush was also expected to announce the formation of a high-level commission on the looming social security (pensions) payments time-bomb, the product of America's 77 million baby boomers who will begin to retire in a decade.

Among the ideas Mr Bush hopes the commission will promote is a consensus on his campaign call for the right of taxpayers to divert part of their payroll taxes into private retirement accounts.

The Democrats insist, however, that the Bush maths simply does not add up and a consensus will be hard won.

The speech was also expected to pledge work on the system of medical care for the elderly, particularly the extension of prescription-drug benefits.

Mr Bush begins his campaign to sell the budget with a 55 per cent approval rating in a new Washington Post/ABC poll, lower than any other president in the last 50 years at this point in their presidency.

The poll also finds that 35 per cent favour priority for education and healthcare in the budget, while only 22 per cent see tax as the top priority.

Meanwhile, Mr Bush has launched a drive for what is being called "new federalism", known in Europe as "subsidiarity". He has set up a working group mandated to provide the states with more waivers from federal programmes and greater flexibility in the way they implement them.

"The framers of the constitution did not believe in an all-knowing, all-powerful federal government," Mr Bush told a meeting of governors.

But he was warned by Democrats among them that his tax-cut proposals could hit his top priority, education, by forcing states to pick up bills they cannot afford.