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Centralised federalism in Malaysia: Urgent need to decentralise


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Aliran has made a submission to the Committee for Institutional Reform pointing out the urgent need for greater decentralisation in our heavily centralised federation.

Submission to the Secretariat Committee for Institutional Reforms

By Persatuan Aliran Kesedaran Negara

Contact person: Dr Francis Loh


Malaysian federalism is extremely centralized. There are 3 reasons:

a) constitutional design which favoured federal over state governments;
b) one-party rule at the federal level and in most of the states for 60 years;
c) implementation and monitoring of NEP which required setting up of federal agencies and federal linked GLCs.

Rest of the world has been decentralizing to achieve democracy and good governance.


a) Facilitates participatory democracy
b) enhances role of local government officials who possess local knowledge which helps them to deliver goods and services attuned to local needs
c) promotes CAT government at state & local level, hence good governance.
d) However, federal government must play role in monitoring role and functions of lower level governments, and helping to improve capacity. Don’t want another level of incompetence & corruption
e) Is in line with the principle of ‘subsidiarity’, key notion of federalism

If we want to compete economically, and restore our reputation as a democracy globally, we must decentralize.

Decentralise can start in these areas:

  • delivery and treatment of water;
  • garbage collection and sewerage;
  • cleaning of roads, drains, rivers and seas;
  • disaster management including rescue in times of floods, fire prevention, natural disasters, and so on;
  • public land transport (licensing and approving routes of stage buses, regulating school, tourist & factory buses, taxis);
  • ferry and river boat transport;
  • maternity clinics and providing primary health services;
  • social welfare services; and later
  • primary and secondary school too.

Some of these services and utilities used to be delivered and regulated by the state governments and local authorities. However, due to one-party Umno-BN rule at the centre and in most of the states, and local governments becoming subservient to the states, most of the above mentioned services were taken over by the federal government (like the CVLB, later SPAD, now back to the federal ministry of Transport).

Funds also accrued to the central government as revenue sources of states and local authorities were transferred to the federal government.

During the 1990s when Kelantan and Sabah states were under Opposition rule, federal development funds for the two states were reduced and/or transferred to the Federal Development Offices, specially created to implement development projects, bypassing the elected Opposition state governments. Nonetheless, development in the two states lagged behind the progress registered in other Umno-BN controlled states. Kelantan was denied petroleum royalty and given wang ehsan instead. Often MB/CM were not invited to attend National Finance Council, National Security Council and National Council of Local Government meetings. Dianaktiri

After GE12 and GE13, Umno-BN federal government also tried to treat the PR-led state governments of Penang and Selangor in the same way. But both states were more industrialized and integrated into the global economy; and hence did not need to depend on federal government allocations in the same way. They were more economically viable. Nonetheless, tensions in federal-state relations worsened.

In Penang, urban traffic congestion problems worsened due to state government’s inability to put more ‘non-commercial’ free buses on the roads. (Growing up I recall riding the City Council buses to go to school and all over George Town).

Penang state government also unsuccessful in taking possession and control of Penang Port Commission. In spite of requests that the Port and ferry services, which were in the red, be transferred to the Penang state government, they were privatized instead.

In Selangor, the problem with Syabas re: water treatment and delivery could not be resolved either. A public spat also occurred between the MB and the State Secretary, a federal appointee.

Cleaning and garbage collection services has also posed problems. All over the world, such services are localized. But in Malaysia, the federal government assumed regulatory control of these services and privatized them to only three companies. Why did this need to occur? Likewise the privatization and transfer of regulatory control of sewerage treatment was also transferred from the state governments to the federal one.

Education: Over the longer term, Malaysia also needs to reform our primary and secondary school education system which employs almost half a million teachers and officers. Almost impossible to run such a behemoth organization efficiently and effectively.

We have been overwhelmed by the problem of mother tongue education and stuck there. In fact, the problems are myriad: declining standards, worsening discipline, ethnic polarization, and flip flops in policies and programs. Parents have lost confidence in our public schools and have been sending their children to private schools or resorted to home schooling.

One size does not fit all. Even children in a single family have different needs and parents have to resort to different ways to help all their children achieve their potential.

Need to decentralize the running of schools. Encourage the participation of parents via the PIBGs, the community via Boards, and local businesses/industries to help finance development. This is the trend throughout the world, including in Finland which has been touted by the new Education Minister as, perhaps, as model to learn from. END


Centralised Federalism in Malaysia: Urgent need to decentralise

The Pakatan Harapan (PH) government has promised to look into the position of Sabah and Sarawak in the federal system, with a view towards restoring autonomy for the two states. PHs Manifesto further proposes that the Prime Minister’s Office be downsized in terms of ministerial appointees, personnel and budget allocations. We support both these goals fully.

Moving from Centralisation to Decentralisation

But we would like to propose that the overall nature of centralized federalism in Malaysia, which has been described by researchers as ‘very centralized’, ‘coercive rather than cooperative’, and even dismissed by one analyst as a ‘flawed federation’, be looked into urgently, with a view towards decentralising. This means sharing jurisdictions and decision-making powers, resources and personnel with the states and local governments.

The Ninth Schedule of the Federal Constitution details the distribution of legislative powers and responsibilities between the federal and state governments.

The federal list is a long one and includes the areas of ‘high politics’ – internal security, law and order, foreign affairs, defense, administration of justice and citizenship; the macro-economic functions of trade, finance, commerce, industry, communication, energy, transport, surveys and research; and welfare functions and social development like education, health, labour, social security, fire prevention and extinguishment.

This is a long list, and very unlike the distribution of powers between the central and state governments in other federal systems. Elsewhere, say in Germany, Switzerland and Canada, or in federal developing countries like India, Ethiopia, South Africa and Brazil , primary and secondary school education, public transport (apart from railways), health, labour, disaster management, social welfare and social security come under the state’s rather than the central government’s purview.

By contrast, the state list is short. The only important areas are lands and mines, Muslim affairs and customs, agriculture and forestry, local government, local public services; and state works and water.

The concurrent list covers social welfare, scholarships, town and country planning, drainage and irrigation, housing, culture and sports, fire safety measures, animal husbandry and public health.

Unfortunately, due to the 60 plus years of one party-rule of the federal and most of the state governments by Umno-BN, as well as adoption of privatization policies since the late 1980s, several jurisdictions which previously fell under the state and concurrent lists have been eroded or transferred to the federal authority. These must now be restored and decentralization promoted.

In so doing, the PH government will be able to create more avenues for the rakyat to participate in policy making and nation building. It is well known that ordinary people identify more with local and state governments than with central governments, usually located far away.

Decentralisation also fosters good governance, provided that we also promote competency, accountability and transparency (or CAT) principles. State-level, even more so local-level governments are more aware of local complaints and problems and are often more responsive to local needs. Social scientists call this ‘local knowledge’.

Hence the planning and delivery of goods and services can also be more easily attuned to local needs. On the other hand, it is difficult to make the central government more accountable and responsive. Not least, they might not be aware, let alone understand local needs.

In fact, central governments operating far away from the rakyat, even more than local and state governments, will also be more easily subjected to elite capture, cronyism and corruption, as we have seen in the previous Umno-BN government.

This trend towards decentralization is globally recognized by the UN’s development arms and the World Bank, and by academicians and practitioners of development. This trend has been occurring throughout the world, in both developed as well as developing countries. The list includes: South Africa, Ethiopia, post-war Iraq, Mexico, Brazil, India, Australia, Canada, Australia, the countries of the European Union especially Germany and Switzerland, but also countries like the UK and South Korea which are not federal countries.

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Decentralisation is also in line with the principle of ‘subsidiarity’, a key concept in federalism, which can be plainly defined as the practise of disallowing the central government of taking over or monopolising a particular task – say, delivering water supply or electricity, running public transportation services or even schools and universities, if the task can be performed efficiently and economically by a lower level of government.

In democracies which believe in decentralization, these utilities and services are performed by the local municipality or state authority, rather than by the central government. Because decision-making is localised, there exists opportunity for community involvement in planning, monitoring and implementation because the community can identify with the policy and with the decision-makers.

Finally, decentralization should also be accompanied by the reinstatement of local government elections. It allows the community to participate in, if not take possession of the government machinery at least at this level, and to appoint and/or get rid of local politicians who are ‘no action, talk only’ or, cakap tak serupa bikin.

Federal-state relations prior to GE12 and GE13

Malaysia used to be more decentralised during the 1950s and 1960s. Elections were conducted for the local authorities municipal and town councils, down to the Local Councils in the Chinese New Villages. In fact, the holding of elections to these local authorities preceded the introduction of federal and state level elections.

As well, municipal and town councils were previously involved in a wide scope of activities and services including public transport, sanitation, low-cost housing, markets, maternity and public health clinics, and so on. A turning point occurred in the mid-1960s when local government elections were suspended and then abolished in the early 1970s. Thereafter, the Central authority began to centralise more and more powers and functions under its wings to the detriment of the local authorities and state governments. Apparently, since the federal and state authorities all belonged to the same ruling Umno-BN party, this centralisation process occurred unimpeded.

In 1991, the federal government redirected development allocations under the Sixth Malaysia Plan 1991-95 away from the opposition-controlled governments under the Parti Bersatu Sabah (PBS) in Sabah and under the Parti Islam SeMalaysia (Pas) in Kelantan, towards the newly established Federal Development Offices in those states. Only grants duly specified in the Constitution were provided directly to the state governments. Development allocations for the two states were also cut in the Mid-term Review of the Sixth Plan, ostensibly because of ‘constraints in the implementation capacity in these states’. Yet other BN-controlled states which had lower rates of project implementation had their allocations increased instead.

During this period, the chief ministers of Sabah and Kelantan were no longer automatically invited to meetings on development matters involving executives of the state governments either. In Sabah’s case, the federal government also imposed a ban on the export of timber logs, ostensibly to promote the development of the local wood-based industries. Sabah, which derived almost 50 per cent of state revenue from forestry earnings, was severely affected. In part because of such financial constraints, Sabah’s economic performance turned sluggish under the PBS. Finally, during the early 1990s, several PBS leaders calling for greater autonomy for Sabah were detained without trial on the grounds of fostering secession.

Federal-state controversies after GE12 and GE13: Examples from Development Projects

How did Selangor and Penang cope after GE12? Unlike Kelantan and Sabah, Selangor and Penang are not poor states but part of the nation’s industrial heartland. They are more incorporated into the global economy and are capable of sustaining themselves even if there were federal funding cuts. In the event the PR-led states refused to be bullied by the central government. The immediate result was a stand-off of sorts. I highlight only a few of these controversies

In Penang, a controversy over development plans for the Penang Botanic Gardens pitted the new chief minister Lim Guan Eng against the Penang State Development Officer (SDO), a federal appointee. When protests occurred surrounding the Gardens expansion project, a federal project involving federal-appointed contractors, the SDO threatened to withdraw the RM7 million federal allocation. Lim feared that delays or withdrawal of the plans would result not only in the abandonment of the plan, but that the federal government would deny the state its share of funds under the upcoming Tenth Malaysia Plan.

In response to Lim’s allegations, the SDO revealed that RM7.6 billion had been allocated to Penang under the Ninth Malaysia Plan and another RM278 million under the Economic Stimulus Package Phases 1 and II for 2009 and 2010. Inadvertently, he also revealed that these allocations were not provided to the elected Penang state government but put under his (the SDO’s) charge; and he answered not to the Chief Minister’s Office but to the Prime Minister’s Office. It appears, therefore, that Penang was being treated the way Sabah and Kelantan had previously been treated in the 1990s.

Another controversial issue concerned the worsening public transport problem in the island state. The federal Commerical Vehicles Licensing Board, later restructured as SPAD, which has just been abolished, had previously monopolised land public transport licensing and approvals even for routing. Licensing for stage buses which are so important for public transportation should be returned to local or state authorities. The routing of buses, should also be handled by local or state authorities, not in Putrajaya.

With decentralisation of approving and licensing stage buses, the Penang state government ought to be able to better address Penang’s awful traffic congestion. In fact, it had previously attempted to alleviate the traffic congestion by providing free ‘non-commercial’ bus services (therefore outside the purview of SPAD) across the bridge, in the inner city, and in Pulau Tikus. It had also offered the federal government linked bus company called Rapid Penang a 10 million ringgit contract to provide free bus services for Penangites during rush hours, a proposal which Rapid Penang did not respond to, after more than a year.

There was also a long running dispute between the federal government and the PR-led Penang state government over Penang Port which for decades had been placed under the charge of the Penang Port Commission (PPC), yet another federal agency despite its name perhaps suggesting otherwise. In fact, the CEO of the PPC was usually nominated by the Malaysian Chinese Association. However, due to continuous losses, the running of the Port was then privatised to a tycoon closely associated with the BN federal government although the Penang State government was appealing that it be ‘privatised’ to it. Just before GE14, the running of the ferry services was handed over to the new federal connected RapidFerry, owned by the federal government linked company Prasarana.

To resolve the traffic problem in Penang, the PR-led government has proposed a comprehensive Transport Plan which involves the construction of several highways, an under-sea tunnel, a light rapid transit system, and land reclamation, which has been criticised by some CSOs. The federal government should decentralise public transport to the local or state authority. The Penang state government should amend its plans accordingly so that it is less costly and less destructive of the environment.

In Selangor, the problem of water treatment and supply pitted the Selangor State government against Syabas, the consortium which holds the concession to the water services of Selangor, Kuala Lumpur and Putrajaya. About a decade ago, the Umno-BN federal authorities had assumed control from the state governments over the supply and treatment of water services throughout the Peninsula, which it then privatised to Syabas and other concessionaires. After the 2008 general election, the newly elected PR-led Selangor government considered the terms of the concession had been too generous to Syabas and demanded a fairer deal for the ratepayers, including free water supply for all up to a certain limit. Naturally, Syabas refused to amend the terms of the concession and they were backed by the federal authorities.

After GE13 in 2014, the Selangor government pulled out of further negotiations and requested the federal water regulating authority to resolve the matter. Although the public has generally sided with the Selangor government in this controversy, the concessionaires are backed by the then Umno-BN federal government, by the banks, and by investors in the concessionaire companies. This problem highlights how difficult it is to reverse the centralising (and privatisation) process, even when a popularly elected state government desires to reverse the process. This problem needs to be resolved urgently, with the help of the new PH federal government.

The above cases highlight the Umno-BN federal government’s attempt to prevent power and financial resources from being transferred from the centre to the states, despite the outcome of the GE12 and GE13. In effect, the BN federal government refused to acknowledge the necessary distinction in federal systems between (federal) government-to-(state) government ties from party-to- party ties. In federal systems all over the world, the norm is to anticipate and expect a mix of different parties coming to power at the different levels of government, and to recognize the rights of both the central as well as the lower order of governments, and to share power and funds accordingly, regardless of party affiliations.

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Need to decentralise educational system as well

A major controversy in the offing is the area of primary and secondary school education. Academic standards have been declining, discipline worsening and the curriculum politicised. There have been flip-flops in policies, for example, reversal of the teaching of Science and Mathematics in Malay, then to English, and recently, back to Malay again. Recently, the Dual Language Programme was restored in some schools.

There is widespread distrust of the education system in Malaysia on account of how it has been politicised and centralized. In federal countries like Canada, Australia, Switzerland, Germany, as well as in developing ones which are federal like India, South Africa, Brazil and Ethiopia, primary and secondary schools fall under the ambit of the state and even local governments; while tertiary education is often the shared responsibility of central, state and sometimes local governments too. Not so in Malaysia!

This is the crux of the matter: our bureaucracy, including the ministry of education has become very politicized and centralised after rule by a single party Umno-BN! Regardless of whether the state and district education offices are located in BN or PR-led states, all these lower level officers and teachers take orders from the federal ministry of education. An organization which employs some 420,000 teachers and another 32,000 odd officers at the federal, state and district cannot be expected to function efficiently. Worse, it has been used by power-crazed politicians and officials for political ends.

In non-federal Asian countries like Japan, South Korea, Taiwan, Philippines and Thailand, the trend is also towards decentralising management of the educational system. Not so in Malaysia!

The solution is to decentralise. Admittedly, one of the goals contained in the Malaysian Education Blueprint 2015-2025 is ‘to decentralise’. But its provisions do not yet allow for the schools to play decision-making roles. At best, KPM transfers policies and programmes that they have designed at the top downwards to the state education department (JPNs) and district level offices (PPDs).

By decentralising certain jurisdictions and sharing decision making with the state and local governments, as occur in other countries, we might get these authorities to share responsibility for providing quality education for our students. Our assumption is that the local and state governments (rather than Putrajaya) can better address problems of local students better. This concern would be especially the case in Sabah and Sarawak.

As well, we ought to attract parents, alumni, the local community and local industry/business to play a role in the upkeep and running of schools. More responsibilities can be given to the PIBGs. At present, the Boards (Lembaga Pengurus Sekolah) of the national-type and mission schools have also been given limited responsibilities.

Decentralisation should encompass decision-making on the deployment of heads of schools, teachers, extra-curricular activities, if not parts of the main curriculum itself.

Educational officers from the federal, state and local governments can work closely with the teachers and the members of these PIBGs and Boards.

In this manner, the quality of teaching, the improvement of the schools and the teaching environment will be upgraded in a more cost-effective fashion too.

Indeed, if more funds can be allocated downwards, and powers on how to spend those funds can be devolved to the local level, it is likely that there will be more competency, accountability and transparency over the use of those funds.

Historically, many programmes have been designed under the impression that ‘one size fits all’. Research globally suggests that different sorts of interventions are required in order to best serve different schools at different performance levels. For sure, the children have their different strengths and weaknesses which are best catered for at the local level.

By granting more autonomy to schools which are located in urban areas and which cater for more middle-class cchildren, KPM can redirect its focus, give more attention, and allocate more funds to schools, especially in the rural areas, which do not yet have strong parental and community support.

Such reforms, including engagement with parents and community, will restore trust in the education system. Too many parents have resorted to private schools and to home schooling.

Finally, we need to restore the dignity of the teaching proession and recruit more young people to become committed teachers. With their trust in the education system restored, parents will stop discouraging their children from becoming teachers. More capable and qualified people of all races will step up to join the teaching profession. Ultimately, our ranking in the Timss and Pisa indexes, and in world university ranking will also improve.

Privatisation of Utilities

Another area concerns the privatization of utilities and the regulatory function that the federal government has assumed from the state and local authorities. The issue of water supply and treatment in Selangor was earlier discussed.

We focus on the cleaning and waste collecting services which has been privatized to only three contractors in the peninsula: Env Idaman Sdn Bhd in the north, Alam Flora Sdn Bhd in the centre, and Southern Waste Management Sdn Bhd in the south . Except for the states of Selangor, Perak and Penang (which opted out of the arrangement), the three contractors share a monopoly over the provision of these services throughout the peninsula. Although it should be obvious that a local rather than big-time company based elsewhere, would be more familiar with local problems pertaining to cleaning and waste collection (as well as water treatment and supply), federalization of these services was legislated and passed in parliament, and subsequently privatized.

These two last points on education and on utilities and services illustrate that federal-state controversies do not necessarily arise as a result of Opposition-led state governments. Rather, most of these problems pertain to the centralization of power and resources that had gone unchecked under more than 60 years of one-party rule.

Appendix: Background to Centralised Federalism in Malaysia

There are three reasons for Malaysia’s overly centralized federalism.

a) Centralized constitutional design

First, the 1957 Federal Constitution is decidedly top-heavy as is evident in Part VI of the Constitution which discusses federal-state relations.

The Ninth Schedule of the Federal Constitution further details the distribution of legislative powers and responsibilities between the federal and state governments.

The federal list is a long one and includes the areas of ‘high politics’ – internal security, law and order, foreign affairs, defense, administration of justice and citizenship; the macro-economic functions of trade, finance, commerce, industry, communication, energy, transport, surveys and research; and welfare functions and social development like education, health, labour, social security, fire prevention and extinguishment.

This long list is very unlike the distribution of powers between the central and state governments in most federal systems. Invariably, sectors like primary and secondary school education, public transport (apart from railways), health, labour, disaster management, social welfare and social security are often under the state rather than the central government’s purview.

By contrast, the state list is short. The only important areas are lands and mines, Muslim affairs and customs, agriculture and forestry, local government, local public services; and state works and water.

The concurrent list covers social welfare, scholarships, town and country planning, drainage and irrigation, housing, culture and sports, fire safety measures, animal husbandry and public health.

State powers are qualified by granting legislative powers to the federal parliament for the purpose of ensuring uniformity of laws across states. In cases of conflict or inconsistency, federal legislation enjoys precedence. Federal laws on local government and most important matters related to land do not even require adoption or passage by the state legislatures. In the event of an Emergency, the federal government is allowed to legislate on all state matters. However, residual powers remain with the states.

These provisions in the 1957 Constitution define the scope of federal-state relations for the peninsula states, and after they were amended in line with the Federation of Malaya Act 1963, for the Borneo states of Sabah and Sarawak too.

The two Borneo states had proposed that a new Constitution be drawn up to accommodate their special interests. However, their proposal was not realized due to the threat of Konfrontasi from a then left-leaning Indonesia.

In the event, more rights and grants are accorded to Sabah and Sarawak than to the original eleven peninsula states. This is why Malaysia is considered to possess an ‘assymetrical’ federal system. Indeed, Sabah and Sarawak political leaders considered the status of their states to be different. For them, Sabah or Sarawak was ‘one of three’ signatories to the London Agreement which paved the way to the formation of Malaysia in 1963.

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Some 50 years later, many of these rights have been whittled away through a series of constitutional amendments resulting in Sabah and Sarawak looking more like ‘one of the thirteen’ states. That said, due to their separate history, different demographic patterns, plus the special rights and autonomy granted to them, a greater sense of regionalism prevails in these two states. It is proper that these additional rights and their autonomy be restored by the PH government.

The Tenth Schedule of the Federal Constitution elaborates on revenue assignment based on the division of jurisdictions spelt out in the Ninth Schedule. Hence it is heavily skewed in favour of the central government. In the Tenth Schedule, income taxes, property and capital gains taxes, international trade taxes, as well as production and consumption taxes, all, are assigned to the federal government. The state government is only allowed to collect natural-resource related taxes such as revenue from lands and mines, as well as from forests.

Significantly, under the Petroleum Development Act (PDA) 1974, all states give up their rights to petroleum resources found within their states. Ownership and control of petroleum and gas, though natural resources, are transferred to the federal owned company, Petronas, tasked with exploiting and mining the resource. Petronas pays the state and federal governments 5% royalty each (Petronas receives 49% while the producer-company receives the remaining 41%) of the gross value of petroleum production. The federal government taxes the producer company (Sarawak Shell, Sabah Shell or Esso). Consequently, the federal government receives more revenue from petroleum than do the petroleum-producing states. However, should the petroleum resources be located beyond the state’s 3-mile territorial waters, the federal government can choose to deny this royalty to the state government.

b) The undemocratic political process

Second, apart from the federal-bias in the constitutional design, the political process that saw Umno-BN controlling the central government and most of the thirteen states for 60 plus years, has furthered centralized federalism too. Additionally, although a Westminster parliamentary system was adopted in 1957, Umno-BN had ruled with a wide array of coercive laws passed by parliament which allowed for preventive detention; strict control over civil society organizations, publications and printing, trade unions, universities and colleges, peaceful assembly, access to so-called ‘official secrets’, etc. Through use of these coercive laws and centralized federalism, the Umno-BN executive ensured uninterrupted control of Malaysian politics.

A related consequence was a politicized bureaucracy, already very centralized by design. Serving under the same BN government for 60 plus years, the federal, state and local government bureaucracies became extensions of Umno-BN. The flip side to this was that they became uncooperative, sometimes hostile, towards the Opposition. This attitude persisted even after the Opposition took control of several state governments after GE12 and GE13. The common complaint was that the State Secretaries, State Development Officers, State Legal Officers, State Financial Officers, the Local Authority chiefs, the District Officers, and even the heads of the department of Lands and Mines and Islamic affairs, the last two falling under the purview of the state governments, were biased against the elected PR governments.

Moreover, as a result of the politicization of the bureaucracy, incompetence, if not corruption, also crept into the workings of the entire bureaucracy. Not surprisingly, although Umno-BN was displaced in Penang and Selangor, they found it difficult, at least initially, to promote ‘competent, accountable and transparent’, or CAT governments

c) The Development Process and the NEP

Third, the development process, underscored by the implementation of the New Economic Policy (NEP, 1971-1990) also contributed to the expansion and consolidation of the federal government.

The Constitution stipulates that the federal government is obliged to provide two major grants to the state governments, namely the capitation grant which is based on the population size1 and the state road grant which helps the states to maintain their network of roads, but is in effect a grant that takes into consideration the geographical size of the state. Apart from these two grants, there are about 10 other tax-sharing taxes and levies that the state is allowed to collect or where the federal government has to reimburse the state. The petroleum royalty is one such case. At any rate, the federal government has sole jurisdiction and discretion over the disbursement of development funds to the state and local governments.

States that have little land and forest, no petroleum or mineral resources can raise enough revenue for operations, but not enough for development. In a study of the Penang state budget, it was shown that the state’s annual budget had been shrinking. A major explanation was that federal grants to the two local authorities in the state were transferred to them directly, bypassing the state government altogether after 2008.

An economist from the Malaysian Institute of Economic Research has observed that the total consolidated state government revenues (in absolute terms) for all the states had been rising since 1985 to the present. From 1995-2000, the average annual rate of growth of state government revenue was about 4.9%. However, the average rate of growth of consolidated state government revenue from 2000 to 2005 declined to approximately 2.5%, indicating that the state governments’ capacity for revenue collection had diminished. Meanwhile the average annual growth of federal government revenue rose from about 4.4% for 1995-2000 to 14.4% for 2000-2005. The trend indicates that those sources of revenue open to the federal government are growing, while those sources of revenue that the state governments can resort to are declining’. Following the 1997-1998 regional financial crisis, the federal government was further enhanced. Not only fiscal policy but also budgetary allocations ‘were concentrated in the hands of the centre’. Consequently, the central government grew stronger and the state governments weaker, financially speaking. It is indeed time to allocate more funds to the states and to correct the vertical imbalance.

Additionally, in pursuit of the NEP, the federal government established numerous statutory bodies and government-linked companies (GLCs) to promote bumiputera commercial and industrial interests. Implementation and monitoring of the NEP required the expansion of the public sector and tight control by the central authorities which shifted even more power from the states to the federal authorities. A case in point is the Commercial Vehicles Licensing Board (CVLB), a federal authority, charged with promoting bumiputera participation in the transportation industry. Consequently, the licensing of taxis and buses, and even the routing of stage buses in the states came under the purview of the CVLB. The CVLB was replaced by the Land Public Transport Commission (SPAD) and now relocated under the Ministry of Transport which we support. But some of the workings of the Ministry must now be transferred back to the states and local authorities.


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Wee Chong Hui (2006) Regional Disparities and Federalism in Malaysia, Kuala Lumpur: University of Malaya Press.

Yeoh, Tricia (2012) States of Reform: Governing Selangor and Penang, Penang: Penang Institute.


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.

AGENDA RAKYAT - Lima perkara utama
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Keat Lee
20 Jun 2018 7.02pm

Totally agree. Too much power is concentrated in the hands of the federal government!!!

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