Malaysia's budget cools talk of an early election

KUALA LUMPUR, Sep 10 (Reuters) The chances of a snap Malaysian election appeared to fade today as investors and political experts weighed up the government's 2008 budget.

The budget, announced on Friday, showered gifts on low-income earners but failed to meet hopes for a major vote-winner like a cut in personal income tax, instead reserving its most generous tax measure for companies rather than voters.

''This is not an election budget, absolutely not,'' said Terence Wong, head of research at investment bank CIMB.

''I was waiting for the signals and the signs (of a snap poll) but I do not see any of them. I think it's second half of next year or even stretching to the last minute, early 2009.'' Many market and political analysts had expected Prime Minister Abdullah Ahmad Badawi would use the budget to spend heavily on crowd-pleasing measures and pave the way for a general election either late this year or early next year.

Instead, he announced a further cut to corporate tax rather than personal income tax, and changed the rules governing dividend payments in a way that analysts believe will benefit institutional shareholders more than retail investors.

Most analysts still expect an election by April 2008, though some sounded a little less certain today. Certainly the prospect of a poll as early as November has dimmed considerably.

Citigroup said the budget was ''not really what was hoped for''.

But columnist Zainon Ahmad said it still gave low-income families a major boost, particularly through housing assistance and education initiatives like free school books and uniforms.

''It's not much, but they are goodies nonetheless,'' added Zainon, who writes for the Sun newspaper.

The ruling coalition is considered certain to win the next election -- it has had a lock on power since independence in 1957 and won a record number of parliamentary seats in 2004. But a strong protest vote could spell major changes in policy.

Friday's budget sought to cheer up urban voters with tax relief on home purchases as well as the ability to draw down retirement savings each month to help service home loans, leading some market analysts to predict a property boom -- and bust.

''We're going to have a boom and a bust ... It could all end in tears, but not for a couple of years,'' said Gerald Ambrose, the head of Aberdeen Asset Management's Malaysian operation.

The budget's new regime for paying dividends, though deemed more advantageous to offshore investors than retail investors, could also help Malaysia's burgeoning middle-class by giving a general boost to stock market valuations, analysts said.

Increases in both house prices and share prices would appeal to many voters, but there are other issues for the government to consider before rushing to an election that is not due till 2009.

''Up until a couple of months ago, things looked as though they were ready (to call elections),'' said Ooi Kee Beng, a fellow at Singapore's Institute of South East Asian Studies.

''Then the bad news started turning up.'' The bad news for the government is that there are clear signs of disaffection with its policies among the country's large and commercially powerful ethnic Chinese community, especially over a decades-old policy of affirmative action in favour of Malays.

Ethnic Malays make up about 60 percent of the population and dominate the ruling multiracial coalition.

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