Malaysia cuts taxes, pledges handouts to fight inflation: Anwar

Aug. 29 | Updated: Aug 30 2008, 08:45am hrs
Malaysian Premier Abdullah Ahmad Badawi cut taxes, promised free electricity for the poor and raised food subsidies in a budget designed to fight inflation and prevent the opposition from seizing power.

Announcing a 5.1 percent increase in next years spending, Abdullah on Friday pledged bonuses to civil servants, lowered duty on home purchases and doubled the number of households on state welfare. Higher spending in 2008 will reverse five years of shrinking budget deficits and create Malaysias biggest overspend since 2003.

Abdullah, 68, is facing renewed calls from his own ruling National Front coalition to resign after leading the government in March to its worst election performance in half a century. Todays handouts may soften the impact of the fastest inflation in 26 years and stall a campaign by opposition leader Anwar Ibrahim to oust the government.

``These are populist measures, said Singapore-based Kelvin Miranda, an investment strategist at Blufire Asset Management Sdn., which manages $110 million in assets. ``Hes trying to buy time.

The government will reduce the top personal tax rate to 27 percent in 2009 from 28 percent, Abdullah said in a speech to parliament.

About 1.1 million lower-income households will be eligible for free electricity, while the premier allocated an extra 3.6 billion ringgit for food subsidies this year.

The handouts are ``not commensurate with the vast increase in inflation and high costs, Anwar said after Abdullahs speech. ``What is given does not actually alleviate the problems and sufferings of the poor.

The governments 2008 budget shortfall will reach 34.5 billion ringgit, or 4.8 percent of gross domestic product, the Ministry of Finance said on Friday. The deficit last grew in 2002.

Abdullah increased by 20 percent the tax on cigarettes sold by companies including British American Tobacco (Malaysia) Bhd. to help offset the widening gap between spending and revenue.

Voter anger over rising prices contributed to opposition gains in the March vote that deprived Abdullahs coalition of its two-thirds majority in parliament. Malaysias inflation accelerated to 8.5 percent last month after the government raised fuel prices to lower subsidies as crude surged.

Bloomberg