I am pleased to officiate Penang Institute’s conference on “Federalism in Malaysia: Design and Practice”. The conference is certainly timely, as the Federation of Malaysia will have just completed her 51st year at the end of today. Much is to be looked at the health, practices and challenges facing this federation we all call home.
Federalism by definition refers to the principles of governance where there are domains for self- and shared rule in a multi-tiered government system. Besides Malaysia, countries that adopt this system of government include the United States, Australia, India, Switzerland and even Russia. As a matter of fact, if we look at the world map, the largest country by area, the second and third most populated countries, and one former and another current superpower, are all federations.
Our federation, however, is an odd one out. Comparatively speaking, Malaysia is highly centralised. The power balance between federal and state is asymmetrically orientated towards the centre and most of the functional domains which enjoy state or municipal control in many other federations, like transport, healthcare, education and policing, fall under the ambit of the federal government.
As a result, the state government is limited by what it can do for their citizens due to both constitutional and financial constraints. In 2013, the combined budget of all 13 states in Malaysia was equivalent to only 6 per cent of the federal budget. In fact, the University Sains Malaysia in Penang has a budget that is larger than the budget of the Penang State Government!
Fiscal Federalism
Constitutional provisions only mandate the payment of paltry sums of money to the state government in the form of statutory grants like the ‘capitation grant’ based on population and the ‘state road grant’, which is calculated based on the mileage of the state roads. A grant is also paid from the federal government to the local authorities. Development funding to states, however, is totally at the behest of federal government.
The weakened state financial position is also made worse by its limited ability to raise revenue. In countries like United States and the Australia, revenues from sales tax form a substantial portion of the state revenue, but in Malaysia the federal government makes no arrangements at all with respect to tax revenue sharing, including in the impending Goods and Services Tax (GST).
The highly centralised nature of fiscal federalism has also inhibited democracy in the sense that states run by the federal opposition are denied adequate resources to take their states further ahead. Penang and Selangor are Malaysia’s two most urbanised and industrialised states that naturally generate the highest revenues in direct as well as indirect taxes. Both the states, however, receive little financial incentives for their success. Meanwhile, on the east coast of the Peninsula, Terengganu had its petrol royalty withheld and replaced with a federal-controlled Wang Ehsan, claiming it was goodwill payment and not a state right, soon after the opposition won the state in 1999. And until today, Kelantan is still fighting for its petrol royalty.
Would Penang have done better with decentralisation? Penang’s GDP grew from RM39.2 billion in 2005 to RM62.6 billion in 2013 or 6% annually over 8 years, with much of the growth concentrated in the years after 2008. If there was decentralisation, no doubt Penang’s GDP would have grown much more with our taxes focused on local development. Between 2001 to 2008, Penang paid RM25.7 billion in revenue but only received back less than 3%. If there was more balanced sharing, development and growth in Penang would be faster. Despite getting only 3% of revenue, Penang still managed an annual growth of 6%.
Transportation
Transportation, one of the biggest issues for Penang as an urbanised state is also facing obstacles from federal over-centralisation. Federal control is so stifling that we can’t even make a decision about where the local buses should go. In spite of this, the Penang state government has always been bold and innovative in its strategies to circumvent federal obstacles to improve the economic and social welfare of Penang citizens. Examples include the free CAT shuttle in inner George Town and the free park-and-ride BEST shuttle between the mainland and the island across the First Penang Bridge for workers at the Bayan Lepas Free Trade Zone.
However, we are often frustrated by federal intervention. Our plan to provide free bus rides for Penangites during peak hours was turned down even when the state was willing to offer an annual RM10 million grant. Plans to extend and build another runway for the Penang International Airport were also denied by the federal government, even though we are fast approaching maximum capacity and would require an expansion in order to cope with the increasing numbers of tourists and investors flocking to our state. Allegations of insufficient land have been proven wrong with land reclamation made possible at the southern tip of the airport. Instead, the federal government is now talking about building a new airport in Kulim, the third airport for Kedah which is not even an industrialised state, unlike Penang.
Be that as it may, we never cease trying. Even though public transport falls under federal purview, we went ahead to commission and implement the RM27 billion Penang Transport Masterplan Strategy that aims to establish new road networks, introduce new public transport infrastructure, improve present carriageways as well as improving the pedestrian ecosystem.
Today, we have announced an open tender to seek a Project Delivery Partner (PDP) for this RM27 billion project. Earlier, we have already awarded the first package, a RM6.3 billion major road network and dispersal project that entails three major bypasses and Malaysia’s first under-seabed tunnel as the third link linking Gurney Drive to Butterworth.
Now, an RFP is being called that would encompass the rest of the Masterplan including buses, trams, MRTs and water taxis. The idea is to seamlessly connect both the mainland and the island, and to fully utilise Penang’s natural advantages, such as the body of water that is currently grossly under-utilised. The outcome of this masterplan is to create a Penang with a well-defined and fully connected road network and dispersal system, as well as a well-integrated and sustainable public transport system.
Education
Over-centralisation has deprived Malaysia from benefiting fully from federalism. Our education system is a main victim of this. If our system was properly decentralised through flexible policy-making and local ownership, we would have a flourishing plural education system today.
In fact, a World Bank report in 2012 had stated that greater local decision-making authority and greater accountability would lead to better learning outcomes. This has been proven all over the world.
Worst, the centralisation of management in education has resulted in “one-size-fits-all” policies that negate the social, economic, geographical and cultural contexts of the local community. This has caused the large urban-rural gap in school performance and the marginalisation of educational development for impoverished and indigenous communities. It should be of no coincidence that country with similarly centralised education management, like Turkey and Mexico, all reported low educational outcomes in international assessments like Malaysia.
Infrastructure
Water, sewerage, and solid waste management were originally within the state jurisdiction but through privatization, they now fall under federal supervision. Such erosion of state functions and capacity is part of the “overt and covert” centralisation agenda, in the words of Dr Francis Hutchinson. Penang is fortunate to have retained control of its own solid waste and water management through the state-held publicly listed company, PBA Holdings Bhd, which is widely heralded as a success story. PBA has managed to secure a profit while allowing Penang citizens to enjoy the lowest domestic water tariff in the country.
Local Democracy
Another casualty of the over-centralisation of Malaysia is local democracy. In 1951, George Town held the first municipal election in Malaya. This was introduced by the British Colonial Government. Sadly, local elections were suspended nationwide in 1965, on the pretext of the Indonesia-Malaysia Confrontation. The Confrontation ended 49 years ago and Indonesia has elected her fifth president since 1998. Mr Jokowi’s recent victory is also a victory of a leader moulded through local democracy, as he had proven himself first as the mayor of Surakarta and then Governor of Jakarta.
Sadly, here in Malaysia, we are still denied local elections. Restoring local democracy is a cause we the government and the people of Penang hold dearly. We have fought for it through legislative and legal means, first by passing the Local Government Elections (Penang Island and Province Wellesley) Enactment 2012 and then by challenging the validity of the provision in the Local Government Act 1976 that prevents state legislatures from providing for local government elections in court. Unfortunately, our legal efforts have hit a roadblock when the Federal Court denied our petition to reintroduce local democracy.
Decentralisation
In an evolving and maturing democratic society, over-centralisation of decision-making powers will not bode well with the aspirations of the people. Over-centralisation also denies Malaysia the various benefits of federalism, like inter-state competition, collaboration and innovation. These are dynamic features that would no doubt serve our multi-cultural society best. In addition, a development policy concentrated in the Klang Valley (and now Iskandar) has resulted in a lack of infrastructure outside these regions, causing great geographical imbalances in development.
It is also imperative for us to recapture the spirit of federalism and restore functional and bilateral federal-state relationships to catapult regional and national growth to greater heights. The covert and overt centralisation which includes appropriation of state powers and resources that had happened through the seconding of federal officers, establishment of federal oversight agencies and legislative control, must be checked and reversed.
I believe that we should celebrate our diversity not just at the religious and socio-cultural level, but also at the governance level. And this can be achieved through devolution of powers and local democracy.
The Penang State Government under Pakatan Rakyat is a firm believer in democracy, diversity and decentralisation, and that Penang’s future lies in a vibrant federation of Malaysia.
As such, we passionately support the research and advocacy of federalism by the Penang Institute under the leadership of Zairil Khir Johari and distinguished researchers such as Prof Dato’ Woo Wing Thye, Dr Lim Kim Hwa, Dr Ong Kian Ming, Dr Wong Chin Huat and Dato’ Dr Toh Kin Woon.
Ladies and gentleman, it is with great pleasure that I am here with an engaged and intellectual crowd in this ambitious project of reimagining Malaysia’s federalism for the future. I am sure the elected representatives, government officials, academics, professionals, corporate leaders, social activists, and fellow concerned citizens will benefit from this intellectual feast on the design and practice of Malaysia’s federalism.
I would also like to congratulate the Penang Institute in successfully hosting the event and its publishing partner, the Institute of Southeast Asian Studies (ISEAS) of Singapore. I look forward keenly to the publication of the complete research outcomes.
Without further ado, I hereby formally announce the opening of this conference. Thank you very much.