Spending on Gulf Coast reconstruction has led the Bush administration to revise upwards sharply its estimates for the federal budget deficit in 2006, by 17 per cent to $400bn, sparking calls for further spending restraint and adding to concerns about extending tax cuts.

Joel Kaplan, deputy director of the Office of Management and Budget, called the hurricane spending “a temporary event” and predicted that with continued spending restraint, the administration remained on track to meet its goal of cutting the deficit in half by 2009.

In July, before the hurricanes struck, the budget deficit had been expected to be $341bn for 2006, compared with $319bn in 2005. The latest forecast does not include the costs of expected supplemental appropriations to pay for the Iraq war, which could add as much as $100bn.

White House officials, who are finalising the 2007 budget, have sought to talk up fiscal restraint while defending hurricane spending. In a visit to Mississippi on Thursday, President George W. Bush said: “People in faraway places like Washington DC still hear you and care about you...the federal government has committed $85bn so far to helping folks and to help rebuild the Gulf Coast.”

Douglas Holtz-Eakin, a fellow at the Council on Foreign Relations and former director of the Congressional Budget Office, said that before Katrina the deficit had been expected to head lower until around 2010 when the baby boomer generation starts to retire.

“The question is whether this move in the wrong direction is just a transitory change or a longer-term trend. Expectations of a higher deficit could make it harder for the administration to win approval for extending tax cuts.”