KUALA LUMPUR, Aug 14 — Efficient fiscal policies that may include broadening the tax base and enhancing the tax administration while ensuring inclusive economic growth are needed to address the income inequality in Malaysia, said RHB Investment Bank Bhd (RHB IB).

In a note, the investment bank said addressing income inequality requires a comprehensive approach which recognises its root cause, and the implementation of policies focusing on progressive taxation, social safety nets, equitable access to education and skill development as well as inclusive economic growth.

"The Malaysian government’s tax revenue as a percentage of gross domestic product has declined over the years, thus, a broader tax base revenue is required to improve the tax base,” it said.

RHB IB said higher spending on crucial sectors such as education and healthcare, a more targeted approach in the subsidies mechanism as well as targeted assistance programmes are also needed to reduce income inequality.

To balance fiscal sustainability and the need for social safety nets for the lower income group, the gradual transformation of blanket subsidies mechanism to targeted transfers is also necessary, it said.

It noted that reducing the income gap between regions and states might take longer as it involves the development of infrastructure such as the upgrading of transport and communication networks in remote areas, as well as improvement of human capital development in particular regions.

"This is further complicated by the rural-to-urban migration, where youths from rural areas migrate to urban areas in search of better employment opportunities and improved living standards.

"This migration can result in a brain drain from rural areas, further exacerbating the urban-rural disparities in human capital and development,” it said.

To this end, RHB IB said labour market policies such as minimum wages, labour law as well as training and skill development play an important role, as these policies can either aggravate or mitigate income inequality, depending on the extent of implementation and enforcement.

It is also crucial to ensure expansion and evolution into high value-added sectors via investments in new technology such as automation, as well as in human capital development such as job training and cultivating a highly skilled workforce that commands higher wages, added RHB IB. — Bernama