Kuala Lumpur, 14 May 2020 – IDEAS has published Policy IDEAS No. 63, “The Political Economy of Federal-State Relations: How the centre influences resource distribution to the periphery”, authored by IDEAS Fellow, Tricia Yeoh. The paper is the second in a series of policy papers on federalism in Malaysia.
Despite Malaysia being set up as a federation, it is highly centralised fiscally, where states and local governments do not have much fiscal-raising powers. The paper shows how the federal government’s control of how financial resources are distributed downwards (to states, local governments and communities) began in a highly politicised environment during the Tun Abdul Razak years. These patterns of political determination continue today, done through highly unequal Constituency Development Funds (CDF) and other “politico-bureaucratic” set-ups.
The author opines that the current system is not sustainable, as it causes politicians to seek alternative sources of political funding if they cannot access it from the federal government in an impartial and unbiased way. This is to be expected as one of the core duties of politicians is to serve their constituents. The CDF model should also be reconfigured to reduce financial dependence on politicians, especially in urban areas. Development funds can instead be disbursed through existing institutions like local governments and land district councils.
The paper recommends four steps to encourage more systematic and rules-based resource distribution from the top down, namely:
1. Provide greater fund-raising flexibility for state and local governments
2. CDF allocations to be given regardless of party affiliation
3. Table a CDF Bill in Parliament
4. Abolish the duplicate Federal Kampung Community Management Councils (MPKKPs) across all states
The first paper in this series, “Reviving the Spirit of Federalism: Decentralisation Policy Options for a New Malaysia” can be downloaded here.