(AFP) The government will try to reduce its budget deficit for next year to ensure it can withstand any future financial crises, Prime Minister Dr Mahathir Mohamad said today.

"If we spend excessively, we will face a big problem. If the economy were to deteriorate, we would face even greater problems," he told a press conference after chairing a pre-budget dialogue.

The budget for 2001 unveiled last October forecast an overall deficit of RM16.14 billion, or 4.9 percent of gross national product. It was the fourth deficit budget in a row.

Mahathir, who is also acting finance minister following Daim Zainuddin's resignation on June 1, said the government's ability to meet demands for tax cuts and additional spending was limited.

"If our economy and finances were not strong, and if we are attacked just like what happened during the last (1997/98) financial crisis, our economy would not be able to recover," Bernama news agency quoted him as saying.

Mahathir blames the financial crisis on an attack on the ringgit by foreign speculators.

Corporate cut

The premier said the government must review all proposals for tax cuts but in some cases these could increase revenue.

If a cut in corporate taxes boosted new business activities and encouraged growth, it could be done, he added.

Last Tuesday Mahathir said the 28 percent corporate tax rate may be lowered in the 2002 budget, which will be unveiled in October.

He said the budget would focus on ways to diversify sources of economic growth amid the global slowdown.