The 10 percent pay increase for civil servants announced in the budget will not play a significant role to spur the economy growth because the inflation would "eat up" the impact of wage increase, said political economist Charles Santiago today.

"The wage increase and tax cut will only benefit the upper and middle class, but the poor, especially the plight of Indian community, has not been given enough attention in the budget," he said, adding that the Kampung Medan racial incident in March had proved that the Indian community needs assistance.

He said the government should in fact offer interest rate cut for low-cost housing to help the poor.

"The poor people are the ones who bear the adverse impact of the economy, but no subsidy is given to them," he said.

Santiago said given the need for a competitive global market, the government should also propose a life-long education scheme for workers, especially when large numbers of retrenchments are expected.

Investment incentive

The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) president Lim Guan Teik said that though the 10 percent pay rise for civil servant was meant to generate the capitol flow, it might nevertheless have certain impacts on the private sector as well.

"Psychologically, the workers in the private sector will hope to have a pay increase also, but the impact on the private sector cannot be estimated now," he said.

However on incentives offered by the government in the proposed budget, Lim was confident these incentives will boost the investment sentiments of investors.

Lim told malaysiakini that extending the reinvestment allowances period to 15 years from five years will help to promote the investment in the country.

"With the slowdown in the economy, the government's deficit budget is acceptable," he said.

Consumer sentiment

A market analyst told malaysiakini that the one percent income tax cut will not encourage domestic consumption which is needed to generate economic growth.

"The consumer sentiment will not improve with a mere one percent cut. Unless the market atmosphere turns better, we should not pay too much expectation on the budget," he said.

The analyst also noted that relaxing the conditions for restructuring listed companies with unsatisfactory financial position be given an extension until Dec 2002 to comply with the KLSE requirement will not boost the share market.

"Those companies should have closed down a long time ago."

However, he said the corporate sector is disappointed that the corporate tax has not been reduced.

"The listed companies thought that a cut in corporate tax will increase their net profit and improve their performance in the market," he said.

Despite the presentation of the budget today, the Kuala Lumpur Stock Exchange composite index closed 5.75 points lower at 615.02.The market closed at 620.77 yesterday.