Dr Mahathir is due to retire from office later this year

It was Prime Minister Dr Mahathir Mohamad's last budget before he steps down as leader and finance minister next month.

The budget is also likely to be the last before an expected general election.

The package, which Dr Mahathir described as a "people's budget", proposes to raise the threshold of taxable income for small-and medium-sized industries to 500,000 ringgit ($132,000).

The total budget of almost $30bn actually represents a 1.6% cut in overall expenditure from the current fiscal year.

Nevertheless, Dr Mahathir still warned that the effects of the war in Iraq and the deadly Sars virus would mean that there would still be a sizeable deficit during the year.

Rising taxes

Amongst those facing increased taxation, drinkers and smokers will suffer the steepest rises of between 10-20%.

And there are new excise duties on imported cars from next year, ahead of the liberalisation of the auto market in 2005.

Dr Mahathir is also seeking to boost a move to amore knowledge-based economy. He said state-owned Telekom Malaysia would cut internet access charges by 30-50%.

And he defended his efforts to turn Malaysia into a hi-tech hub.

The country is expecting the improved health of the manufacturing and services industry to contribute to overall economic growth of 5.5-6.0% in 2004, compared to the 4.5% forecast for 2003.