Insufficient federal funding: Heeding economic conditions and development needs

THERE is a call for more federal funding by state governments as they claim that what was allocated to them is not sufficient.

The latest to make the call is the Regent of Johor, His Royal Highness Tunku Ismail Sultan Ibrahim who had earlier this week expressed hope that at least 20-30% of Johor’s revenue would go back to the state.

He said currently, all the state’s tax revenue – about RM48-49 bil a year – had currently gone to the federal government and that Putrajaya only gives the state RM1.4 bil.

In recent days, similar requests were officially made to the federal government by other state governments like Penang.

In response Communications Minister Fahmi Fadzil said the nation is built on the agreement between all states and is based on the principles of federalism which is the main core of the Federal Constitution, and the progress of the nation is based on the joint strength of the federal government and all states.

The Federation of Malaya was a significant step in the nation’s journey towards complete self-governance and ultimately, the creation of the modern state of Malaysia.

The Malaysia Agreement 1963 (MA63) was a key treaty that led to the formation of Malaysia.

Signed on July 9, 1963, by the United Kingdom, the Federation of Malaya, North Borneo (now Sabah), Sarawak, and Singapore, this agreement laid the legal and constitutional foundation for the merger of these territories into a single nation, Malaysia, which was officially established on September 16, 1963.

The Constitutional Provisions agreement necessitated amendments to the Malayan constitution to accommodate the new states and ensure their rights and interests were protected.

Sabah and Sarawak were granted significant autonomy and special rights, including control over immigration, native rights, and the use of English as an official language alongside Malay for a certain period.

The Financial Arrangements provisions were made to ensure economic stability and development for the newly formed states of Sabah and Sarawak.

Singapore was initially part of the federation but left Malaysia on August 9, 1965, to become an independent nation.

(Pic credit: Shutterstock)

MA63 was crucial in shaping the political landscape of Southeast Asia and ensuring a smooth transition for the new nation while addressing the unique needs and circumstances of each constituent state.

The financial arrangements between the federal government and the state governments in Malaysia, especially as outlined in the MA63 and subsequent constitutional provisions, are designed to ensure fair distribution of resources and financial autonomy for the states.

These arrangements include several key aspects of revenue sharing whereby specific revenues are shared between the federal and state governments.

States receive a portion of the revenue generated from natural resources like petroleum, gas, and forestry.

The federal government provides various grants to the states to support their development and administration. These include the capital grants based on the state’s population, the state road grants for the maintenance of state roads, and economic development grants for specific development projects.

Due to their unique status under MA63, Sabah and Sarawak receive additional financial provisions, including the annual grants to cover administrative costs and development. The special grants address the higher cost of development and support their economic growth.

The federal government can provide loans and advances to the states for development projects, but these are subject to terms and conditions agreed upon by both parties.

Natural resources, particularly petroleum and gas, receive royalty payments. For example, states like Sabah and Sarawak receive a percentage of the revenue from oil and gas extracted from their territories.

These financial arrangements are crucial for ensuring that state governments have the necessary resources to manage their affairs and contribute to the overall development of Malaysia.

Regular reviews and adjustments are made to these arrangements to address changing economic conditions and development needs.

The financial allocations and revenue-sharing arrangements between the federal government and state governments in Malaysia are specified in the Federal Constitution and further detailed in various agreements and legislations.

The amounts can vary based on several factors including population, development needs, and specific arrangements for states like Sabah and Sarawak under MA63.

However, recent revelations and demands from various states for more grants indicate that the earlier understanding, agreement, legislation and provisions are no longer working harmoniously.

Though regular reviews and adjustments are made to these arrangements to address changing economic conditions and development needs, teething issues are not addressed specifically and holistically.

It is therefore high time the federal government and the state government revisit all issues comprehensively to avoid any further issues that could impede the country’s growth. – June 13, 2024


K. Tamil Maran (K.T. Maran) is a Focus Malaysia reader.

The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.


Main pic credit: The Star

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