Restructuring Federal–State Relations in Malaysia: From Centralised to Cooperative Federalism

The coming to power of the Pakatan Rakyat (PR) opposition coalition in five states following the 2008 election has interrupted the one dominant party political process that has prevailed for more than 50 years, and that facilitated the Barisan
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  This article was downloaded by: [University College London]On: 29 March 2015, At: 19:06Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registeredoffice: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK The Round Table: The CommonwealthJournal of International Affairs Publication details, including instructions for authors andsubscription information: Restructuring Federal–State Relationsin Malaysia: From Centralised to Co-operative Federalism? Francis Kok Wah Loh aa  Universiti Sains Malaysia , Penang, MalaysiaPublished online: 01 Apr 2010. To cite this article:  Francis Kok Wah Loh (2010) Restructuring Federal–State Relations in Malaysia:From Centralised to Co-operative Federalism?, The Round Table: The Commonwealth Journal of International Affairs, 99:407, 131-140, DOI: 10.1080/00358531003656180 To link to this article: PLEASE SCROLL DOWN FOR ARTICLETaylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis,our agents, and our licensors make no representations or warranties whatsoever as tothe accuracy, completeness, or suitability for any purpose of the Content. Any opinionsand views expressed in this publication are the opinions and views of the authors,and are not the views of or endorsed by Taylor & Francis. The accuracy of the Contentshould not be relied upon and should be independently verified with primary sourcesof information. 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FRANCIS KOK WAH LOH Universiti Sains Malaysia, Penang, Malaysia A BSTRACT  The coming to power of the Pakatan Rakyat (PR) opposition coalition in fivestates following the 2008 election has interrupted the one dominant party political process thathas prevailed for more than 50 years, and that facilitated the Barisan Nasional (BN)’sdomination of the centre and penetration into the states and local authorities. Nowadays, the PR-led states of Selangor and Penang in particular have challenged federal domination as neverbefore. The old ways of bullying weaker and poorer opposition-led states such as Kelantan and Sabah in the 1990s have been rejected. The new balance of federal–state relations has allowed theBN-led states of Sabah and Sarawak to press for decentralisation of decision-making, increased development allocations, and a greater say in determining local issues. Hence, in spite of theabsence of constitutional reforms vis-a `-vis federal–state relations, some restructuring of thoserelations is underway. However, the regular occurrences of controversies suggest that Malaysiahas still not transited from a centralised federalism to a more co-operative one. K EY  W ORDS : Malaysian federalism, centralised federalism, development allocations, Penang,Selangor, Sabah, Kelantan Introduction In the 12th general election of 8 March 2008, the Barisan Nasional (BN) lost notonly its two-thirds majority in parliament; it also lost an unprecedented five of the 13states to the newly formed Pakatan Rakyat (PR) opposition coalition. There havebeen various follow-on developments since then, including the reverting of the Perakstate government back to the BN fold in June 2009. In the event, the most significantof these post-March 2008 developments was the formation of the PR oppositioncoalition, which paved the way for the transformation of Malaysia’s one dominantparty system—in place for more than 50 years—to a two-party system on the onehand, and the restructuring of federal–state relations, which augurs well for thedevolution of power and the decentralisation of decision-making, on the other. Correspondence Address:  Professor Francis Kok Wah Loh, School of Social Sciences, Universiti SainsMalaysia, 11800 Penang, Malaysia. Email: The Round TableVol. 99, No. 407, 131–140, April 2010 ISSN 0035-8533 Print/1474-029X Online/10/020131-10    2010 The Round Table LtdDOI: 10.1080/00358531003656180    D  o  w  n   l  o  a   d  e   d   b  y   [   U  n   i  v  e  r  s   i   t  y   C  o   l   l  e  g  e   L  o  n   d  o  n   ]  a   t   1   9  :   0   6   2   9   M  a  r  c   h   2   0   1   5  This article focuses on the scope and current dynamics of Malaysia’s federalism,which has been described as ‘very centralised’, ‘coercive rather than co-operative’,and even dismissed by one analyst as a ‘flawed federation’ (Holzhausen, 1974;Kitingan, 1987). The factors that shape Malaysia’s centralised federalism will first bediscussed. The second part of the article elaborates on some of the silly episodesthat occurred after the 12th general election, owing to the reluctance of the BNfederal government to share power, revenue and other resources with the PR-ledstate governments. A third part discusses how the federal government dealt withthe opposition-led state governments in the 1980s and 1990s and explains why thefederal government cannot resort to its old bullying tactics when dealing with thesePR-led state-governments today. Indeed, the latter have been challenging the usualbullying ways of the central government, which has led to much controversy andtension in resolving federal–state relations. This is discussed in the final part of thearticle. Ferment in Malaysia’s federalism is occurring, but the transition from acentralised to a co-operative system will occur only over the long term, and perhapsrequires a change of government at the centre as well. Malaysia’s Centralised Federalism As a federation, Malaysia finds itself in the company of Commonwealth countries suchas Canada, Australia, India, South Africa and Nigeria. However, whereas in thesecountries power, revenue and resources are shared between the central government andits constituent state governments, the constituent states in Malaysia have relativelylimited access to the same (an excellent website on the comparative operations of federalism is There are  three  major factors why this is so.First, the 1957 constitutional design clearly favours the central over the stategovernments, in terms of legislative jurisdictions as well as in revenue assignments. TheNinth Schedule of the Federal Constitution details the distribution of legislative powersand responsibilities between the federal and state governments. Apart from foreignaffairs, defence, internal security, and law and order, the purview of the federalgovernment includes trade, commerce and industry, physical development such ascommunication and transport, and human development such as education and health.By contrast, the state government’s purview is restricted to areas such as lands andmines, Muslim affairs and customs, native laws and customs, agriculture and forestry,local government and public services, burial grounds, and the licensing of cinemas andtheatres. The concurrent list covers social welfare, scholarships, town and countryplanning,drainageandirrigation,housing,cultureandsports,andpublichealth(MohdSalleh bin Abbas, 1978; Kitingan, 1987; Mohamad Agus Yusoff, 2006; Loh, 2009).The Tenth Schedule of the Federal Constitution elaborates on revenue assignmentbased on the division of jurisdiction spelled out in the Ninth Schedule. In the TenthSchedule, income taxes, property and capital gains taxes, international trade taxes,as well as production and consumption taxes are all assigned to the federalgovernment. The state government is allowed to collect only natural resource-relatedtaxes such as revenue from lands and mines, as well as from forests.Significantly, under the Petroleum Development Act (PDA) 1974, all states giveup their rights to petroleum resources found within their states. Ownership andcontrol of petroleum and gas, though natural resources, are transferred to the132  F. K. W. Loh    D  o  w  n   l  o  a   d  e   d   b  y   [   U  n   i  v  e  r  s   i   t  y   C  o   l   l  e  g  e   L  o  n   d  o  n   ]  a   t   1   9  :   0   6   2   9   M  a  r  c   h   2   0   1   5  federal-owned company, Petronas, tasked with exploiting and mining the resource.Petronas pays the state and federal governments 5% royalty each (Petronas receives49% whereas the producer company receives the remaining 41%) of the grossvalue of petroleum production. In addition, the federal government taxes theproducer company (Sarawak Shell, Sabah Shell or Esso). Consequently, the federalgovernment receives far more revenue from petroleum than do the petroleum-producing states. However, should the petroleum resources be located beyond thestate’s 3-mile territorial waters, the federal government can choose to deny thisroyalty to the state government. This stipulation has been contested by Kelantan,one of the PR states, as will be discussed later.The Constitution also stipulates that the federal government is obliged toprovide two major grants to the state governments, namely the  capitation grant ,which is based on the population size, and the  state road grant , which helps thestates to maintain their network of roads, but is in effect a grant that takes intoconsideration the geographical size of the state. Apart from these two outrightgrants, there are about 10 other tax-sharing taxes and levies that the state isallowed to collect or where the federal government has to reimburse the state. Thepetroleum royalty is one such case. At any rate, the federal government has sole jurisdiction and discretion over the disbursement of all development funds, onwhich, in fact, the Ninth and Tenth Schedules are silent (Wee, 2006; Nambiar,2007).Hence, the federal BN government can, technically speaking, deny developmentfunds to the PR-state governments. However, as the federal government wishes towin over the voters in these states, it continues to provide funds to these states butchannels them through federal-controlled departments and agencies located inthe states. For example, most development funds to the PR states are currentlychannelled to the State Development Offices, which are answerable to the Imple-mentation Co-ordination Unit of the Prime Minister’s Department. Whateverthe case, the result is a very uneven distribution of revenue and therein financialresources between the federal and state governments. This fact highlights a majorshortcoming in fiscal federalism in Malaysia.Second, apart from the federal bias in the constitutional design, the politicalprocess that has seen a single political party, the BN, controlling the centrefor more than 50 years, has further facilitated a centralised federalism. Thisdomination by the central government coincides with the increased role of theExecutive in decision-making, which has been legitimised in terms of the need toensure Malaysia’s security and to preserve ethno-religious harmony in multi-ethnic,multi-religious Malaysia. The abolition of local authority elections in the 1970sallowed the BN to penetrate further into the third tier of government where theirappointed councillors dominate the municipalities, town councils and districtcouncils.Hence, not only can the federal government dictate the pace and directionof development in the states, including in opposition-controlled states, but thefederal Executive may also invoke party discipline to remove the Chief Ministersor  Menteri Besar  (MB) of constituent states whenever they challenge theprerogatives of the centre. In the early 1990s, several opposition leaders callingfor greater autonomy for Sabah were detained without trial on the grounds Restructuring Federal–State Relations in Malaysia  133    D  o  w  n   l  o  a   d  e   d   b  y   [   U  n   i  v  e  r  s   i   t  y   C  o   l   l  e  g  e   L  o  n   d  o  n   ]  a   t   1   9  :   0   6   2   9   M  a  r  c   h   2   0   1   5  of fostering secession, while two United Malays National Organisation (UMNO)MBs who questioned or disobeyed their federal leaders were put into politicallimbo during the 1970s (Mohamad Agus Yusoff, 2006; Loh, 2009, pp. 121–153).Third, the development process underscored by the implementation of the NewEconomic Policy (NEP, 1971–90) contributed further to the expansion andconsolidation of the federal government. For in pursuit of the affirmative actionNEP, the federal government established numerous statutory bodies and govern-ment-linked companies (GLCs) to promote bumiputera commercial and industrialinterests. Implementation and monitoring of the NEP required the expansion of thepublic sector and tight control by the central authorities, which shifted even morepower from the states to the federal authorities. A case in point is the establishmentof the Commercial Vehicles Licensing Board (CVLB), a federal authority chargedwith promoting bumiputera participation in the transportation industry via licensingcommercial vehicles. Consequently, the licensing of taxis and buses, and even therouting of buses in the states, came under the purview of federal authorities, in thiscase, the CVLB. Consolidating Federal Control over Development Funds In the aftermath of the 2008 election, the federal government moved quickly toconsolidate its control over development funds, to discern whether or not toimplement major projects in the PR-led states, and to make the necessary arrange-ments to bypass the PR-led state governments and re-channel those funds to federal-controlled agencies or departments at the state level instead. As the victories of thePR had not been expected in the five states, the BN government conducted thesepolicy shifts and administrative practices in a rather crude and crass manner.Consider the following episodes, which occurred in the immediate post-electionperiod. .  The federal Minister of Tourism unilaterally cancelled all memorandums of understanding between her ministry and the PR-led state governments. Theexisting State Tourist Action Councils (TACs) were dissolved, and thenreconstituted under the direct control of the Minister of Tourism. Henceforth,all federal funds spent in the promotion of tourism were channelled directly tothe new federal-controlled TACs ( The Star , 28 and 29 April 2008). .  The federal Entrepreneur and Co-operative Development minister announcedthat funds for projects under his ministry would henceforth be distributed byMARA, a federal agency, rather than by the State Economic DevelopmentCorporations in the PR-led states ( The Star , 27 April 2008). .  The federal Minister of Rural and Regional Development promised that allvillage chiefs and village development and security committee (JKKK) membersin PR-led states who resigned from their posts would continue to receiveallowances from the federal government. For after resignation, the 2,000 chiefs inthe PR-led states were absorbed into a new committee under his ministry.Meanwhile, the PR-led state governments appointed new village chiefs to headthe JKKKs, resulting in two different sets of village heads and committees ( TheStar , 9 April 2008, 25 April 2008 and 16 May 2008).134  F. K. W. Loh    D  o  w  n   l  o  a   d  e   d   b  y   [   U  n   i  v  e  r  s   i   t  y   C  o   l   l  e  g  e   L  o  n   d  o  n   ]  a   t   1   9  :   0   6   2   9   M  a  r  c   h   2   0   1   5
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