(AFP) The 2002 budget, designed to fight the effects of a world economic slowdown worsened by the terror attacks on the United States, has received a mixed reaction.

The Malaysian International Chamber of Commerce and Industry (MICCI) said it was disappointed that its call for a reduction in the corporate tax rate was not met.

Prime Minister Dr Mahathir Mohamad, who is also finance minister, announced a 1-2 percentage point reduction in personal income taxes when he presented the 2002 budget on Friday but left corporate taxes unchanged at 28 percent.

Instead he proposed several corporate incentives such as an extension of the reinvestment allowance period to 15 years from five, together with other industry-specific allowances and tax exemptions.

The MICCI acknowledged that even without a corporate tax cut the extension of the reinvestment allowance would enhance additional capital injection into the operations of existing investors.

Mahathir told parliament the "horrendous" attacks on the US had made the prospects of an early global economic recovery more uncertain, adding that a retaliatory war "will only worsen the already weak world economy".

Prudent budget

The record RM100.52 billion budget is designed for a deficit of 5.0 percent of GDP, the fifth straight deficit budget since the Asian economic crisis.

Fund managers said the budget was expected to be neutral for stocks this week after hopes of corporate tax cuts were dashed and pump priming measures turned out largely in line with expectations.

However, they added that the overall budget was prudent, with measures put forward to implement projects and speed up payments viewed positively.

"It was pretty much in line with expectations. Generally, it is market neutral," Kenanga Investment Management senior fund manager Johan Tazrin Ngo told AFP's financial news unit AFX.

With the measures in the budget seen mainly as "people-friendly", the main beneficiaries, although indirectly, may be retailers and firms involved with the tourism industry, analysts said.

Johan said a 10 percent salary increase for civil servants and personal income tax cuts were positive for consumption.

Other analysts agreed that the budget was not without its positive elements even if it lacked the widely expected corporate tax cut.

"There's no corporate tax cut but companies do have some benefits. The allowances could benefit some of them," OSK Research manager Pankaj Kumar said.

'Mildly expansionary'

GK Goh regional economist Song Seng Wun said the budget was "mildly" expansionary and aimed at encouraging individuals to spend more to offset declining exports.

Regional economist with IDEAglobal.com, Nizam M. Idris, said, however, there were many inconsistencies in the measures to boost consumer spending.

On one hand, the government raised disposable income through the lowering of personal taxes, but on the other hand, it was raising petrol prices and lowering the threshold for service taxes.

Mahathir announced that the government had revised downwards its 2001 gross domestic product (GDP) growth forecast for a second time, to 1.0-2.0 percent, because of the "greater-than-expected" slowdown in the world economy.

In March, the government cut its growth estimate from 7.0 percent to 5.0-6.0 percent after strong expansion of 8.3 percent in 2000.

Mahathir said GDP in 2002 is expected to grow 4-5 percent.