THE Institute for Democracy and Economic Affairs (Ideas) has four proposals for Budget 2020, which the think-tank said will set the tone towards embracing shared prosperity.

Ideas research director Laurence Todd at a forum today proposed a new living wage tax credit (LWTC), employee equity schemes (ESS), introduction of capital gains tax (CGT) and government divestment strategy.

He said these proposals will set a basis for the government’s shared prosperity vision, taking into account Putrajaya’s limited finances – servicing high national debt and earnings from a narrow revenue base.

“This four proposals can put flesh on the bones of what shared prosperity will look like,” he said at the “Budget 2020: Making Shared Prosperity a Reality” forum.

The LWTC entails incentivising employers who raise their employees’ wages to above the minimum wage threshold. This can be in the form of incentivising corporate tax.

The ESS, it said should be made available to the lower income employees, to ensure there is sharing of wealth.

Ideas is also proposing for CGT to be introduced with an initial rate of 5%.

As for the government divestment strategy, Todd said the government, which controls about 40% of the Kuala Lumpur Composite Index, should divest its holdings to 10% of the total market capitalisation of the local stock market by 2030.

The proceeds should be reinvested in new markets that will generate returns to the Malaysian people, he added.

The heavy presence of the government through its equity holdings in some 70 companies creates concerns that it will affect competition and the lack of liquidity in capital markets.

Ideas is also proposing for the government to initiate a review of GLCs in the upcoming budget to form the basis of the divestment strategy.

Todd said disparity in terms of absolute income, wage to productivity ratio, inflationary pressures faced by the lower income group and their share of expenditure when compared to richer households – are some of the challenges the government have to address before achieving shared prosperity.

Meanwhile, Prof Jomo Kwame Sundaram, who was also speaking at the event, said it is important to implement an expansionary fiscal policy that is prudent and not profligate amid the backdrop of a deteriorating global economy.

While this may not fully avert an economic recession, it would cushion its impact to an extent, he said.

“Fiscal stimulus will not only help in stabilising the economy but to facilitate long-term growth.”

He said fiscal spending will have to be deployed to create a buffer for economic downturn and lay the foundation for future growth. – September 19, 2019.