Share power, revenue and jurisdictions with the states and local government

A review and reform of federal-state relations in Malaysia would be in keeping with a global trend towards greater decentralisation

Menyampaikan laporan sementara: Francis Loh, Gooi Hsiao Leung, Ketua Menteri Chow Kon Yeow dan Ooi Kee Beng

On 9 May, Penang Chief Minister Chow Kon Yeow urged the formation of a federal-state relations commission to study the working relationship between Putrajaya and various states, especially on issues under the federal government’s jurisdiction.

This was one of three recommendations made by a committee – set up by the Penang state government in early 2022 – which recently submitted its interim report to the state government. The committee comprises Bukit Tengah state assembly member Gooi Hsiao Leung, Penang Institute executive chairman Dr Ooi Kee Beng and project leader Dr Francis Loh, a former professor of politics at Universiti Sains Malaysia and now senior advisor to the Forum of Federations, an international Ottawa-based NGO.

The country now has to contend with the political uncertainties set off by the Sheraton backdoor coup, along with the challenges faced by ordinary folk during the Covid pandemic. This adds to the urgency of devolving power, sharing revenue and assigning duties to the different levels of government in order to achieve good governance. Not least, the Malaysian economy also contracted sharply in 2020 and has not yet recovered.

The second recommendation in the interim report was to establish an “all-states collaboration committee” to enhance formal and informal cooperation among states and develop mechanisms to coordinate federal-state issues.

The formation of standing, as well as ad-hoc committees, is a common thing in federal countries. Often, it allows the state governments, regardless of party affiliation, to share experiences of working on different subjects together, while engaging with the federal government as well. It allows for best practices from one state to be passed on to others.

In Malaysia, the few all-state standing committees have been dominated by the Umno-Barisan Nasional federal government, disallowing Umno-BN state governments from consulting, cooperating and coordinating with opposition-led state governments.

In essence, the Penang chief minister was hoping that more states, regardless of party affiliation, would now come together in the hope of promoting responsible and responsive governance. If a state government did not wish to participate, Chow said that they could invite the opposition parties in those states to take part.

The third recommendation in the interim report was to establish a bipartisan standing or select committee in the Penang State Legislative Assembly itself. Given that the Pakatan Harapan-led Penang state government has a clear majority in the legislature, the formation of such a committee would occur.

This standing or select committee could look into specific matters like finance, health, social welfare, education, roadworks, disaster management, flood mitigation, and trade and industry – all towards improving federal-state relations as these matters get tackled.

The interim report “Enabling decentralisation and improving federal-state relations in the Federation of Malaysia”, will shortly be uploaded to the Penang Institute website, the chief minister revealed. [Update: The report is now available on the Penang Institute website.]

Put another way, this call by the Penang CM was for a thoroughgoing review of federal-state relations in Malaysia. Indeed, Malaysia’s federal system has been described by researchers as “highly centralised”, “coercive rather than cooperative”, and even dismissed by one analyst as “flawed federalism”.

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Significantly, the origins of this centralised federalism are related to the incessant focus on the ethnic dimensions of power-sharing rather than on power-sharing between the centre and the states during the march towards independence.

In the end, this lack of concern for equitable relations between the centre and the states resulted in the designing of a Federal Constitution that is extremely centralised.

This call for decentralising power, sharing revenue and reallocating jurisdictions is not new. Opposition parties in the peninsula, the regional parties of Sabah and Sarawak, and NGOs advocating federalism and the restoration of local government elections, including Aliran, had voiced this call for decentralisation in the past.  

Yes, with the takeover of more state government by opposition parties since 2008 and regime change following the 2018 general election, the subject of decentralisation has been given increased attention.

Following the formation of the PH government in 2018, Aliran submitted a memorandum “Centralised federalism in Malaysia; urgent need to decentralise” to the government’s committee for institutional reform.

Alas, before the PH government had time to review the problem comprehensively, the Sheraton coup took place!

Reforms in federal-state relations under the short-lived PH government

That said, there are several noteworthy reforms that the short-lived PH government achieved during the 22 months it was in office, most of them perhaps not well known to the public.

Perhaps you have heard of the setting up of the special cabinet committee on the Malaysia Agreement 1963 (MA63) to review the agreement and restore greater autonomy for Sabah and Sarawak, as originally provided for in MA63.

Well, many of these demands by Sabah and Sarawak were looked into by the committee, headed by the PM and which included the chief ministers of Sabah and Sarawak. Some of them were acceded to; others were referred to newly created joint committees to study the problem further.

Significantly, one of the demands of the PH opposition parties when they signed the MoU to cooperate with the Perikatan Nasional-Bersatu government (after the Sheraton coup) was that the government had to table the constitutional amendment of Article 1(2) of the Federal Constitution 1957. This amendment would restore the status of Sabah and Sarawak as equal partners of Peninsular Malaysia (two of three parties to MA63) and not simply regard them as two of the 13 states.

Notably, this constitutional amendment was done on 14 December 2021, and many Sarawakians and Sabahans welcomed the move. But many of them also believe not all matters (especially regarding economic parity and concerns surrounding the identity of the indigenous peoples of the two states) have been put right with this simple amendment. 

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A second initiative by the original PH government was to establish the Parliamentary Select Committee on States and Federal Relations. This select committee was looking into various matters, including how federal-state relations had been affected due to the privatisation of water treatment and supply, the takeover of solid waste, the management of public transport and so on.

But this select committee’s assigned review was cut short by the coup. And since Parliament sat sparingly due to the political uncertainty of the PN-Bersatu government, the initial good work of the committee was discontinued.  

Several other developments concern increased revenue for the states, due to initiatives by the PH finance minister.

First, the Ministry of Finance agreed to share half of the tourism tax revenue collected by federal authorities; this was announced by the finance minister during his Budget 2019 speech. This move is significant as it was the first time the federal government had undertaken tax distribution extra-constitutionally for states, outside of the fiscal transfers required under the Federal Constitution.

Second, the longstanding disputes over unpaid oil royalties between Kelantan and Terengganu, on the one hand, and the federal government, on the other, were resolved. So, Kelantan received RM17m and Terengganu received RM1.3bn.

Poorer and less developed states such as Perlis, Kedah, Kelantan, Terengganu, Sarawak and Sabah also saw increased allocations for development. A total of RM13.1bn was reportedly channelled to these states under the “shared prosperity vision” initiative launched by the PH government.

Penang, too, got additional federal funding under the PH government, especially funds much needed for flood mitigation projects, which had not been approved previously by the Umno-BN government. The state’s application to further expand the Penang International Airport was approved while RM100m was allocated for upgrading Penang Hill’s cable car system. The federal government then also gave a guarantee of RM10bn (sukuk Islamic bonds) to pay for Penang’s light rail transit project under the “Penang Transport Master Plan” (PTMP).

Alas, this momentum towards revitalising federalism and revamping federal-state relations was nipped in the bud following the Sheraton backdoor takeover in February 2020.

The PN-Bersatu government that displaced the PH government had no interest in conducting a review of and to reform Malaysian federalism.

Global trend towards decentralisation

A review and reform of federal-state relations in Malaysia is in keeping with a trend towards greater decentralisation throughout the world, in both developed and developing countries.

Countries which in recent times have decentralised to share power, revenue, personnel and other resources between the central and lower-level governments include South Africa, Nigeria, Ethiopia, post-war Iraq, Mexico, Brazil, Argentina, India, Australia, Canada, Australia, EU nations especially Germany, Spain and Switzerland, as well as countries like the UK and South Korea, which are not federal countries.

READ MORE:  Decentralisation and the restoration of local government elections

Why this sudden eagerness to decentralise?

First, decentralisation is in line with the principle of ‘subsidiarity’, a key concept in federalism. Simply put, the principle asserts that taxing, spending and regulatory functions should be performed by the lowest level of authority which is capable of performing the tasks competently – unless a convincing case can be made to assign these to higher orders of government.

So, federal countries often disallow the central government from taking over or monopolising a particular task – say, delivering water supply or electricity, organising buses, ferries or other public transport services, or even running schools and universities – if the task can be performed efficiently and economically by a lower level of government.

Second, in line with this principle of subsidiarity, certain basic and essential competences or jurisdictions are accorded to the state and local authorities. These competences include providing primary and secondary school education and healthcare; organising the labour force for local priorities; catering for welfare needs; managing a response during an emergency; and organising public transport for the local area or region.

State governments, even more so local governments, are arguably more aware of local complaints and problems and are often more responsive to local needs. The planning and delivery of goods and services can also be more easily attuned to local needs because those making policy purportedly have ‘local knowledge’.

On the other hand, it is difficult to make a central government more accountable and responsive. Not least of all, those at the national political centre might not be aware of, let alone understand, local needs.

Third, it is also well known that ordinary people identify more with local and state governments than with central governments, the latter being often located ‘far away’.

Consequently, decentralised governments tend to offer more opportunities for the local community to be involved in the planning, monitoring, and implementation of government policy, and in decision-making generally.

In stimulating the state and the local community to work in tandem, decentralisation, it is further argued, fosters competency, accountability, and transparency (CAT) and good governance.

A good indicator of this is the higher turnout rates for local government and state-level elections compared to national elections. Tellingly, interest in local government elections remains high while disillusionment and cynicism with elections to parliaments, congresses and other central representative bodies have grown.

Accordingly, decentralisation should be accompanied by the reinstatement of local government elections. These allow the community to take part in, if not take possession of government machinery, at least at a relatable level, and to dismiss local politicians of the ‘no action, talk only’ (NATO) variety and those who indulge in corrupt practices.

In our next newsletter, we will take a closer look at local government and the restoration of local government elections.

Dr Francis Loh
Co-editor, Aliran newsletter
7 June 2022


AGENDA RAKYAT - Lima perkara utama
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  5. Lawan rasuah dan kronisme
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The views expressed in Aliran's media statements and the NGO statements we have endorsed reflect Aliran's official stand. Views and opinions expressed in other pieces published here do not necessarily reflect Aliran's official position.
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