Prime Minister Najib Abdul Razak tabled the 2012 Budget with great fanfare, announcing a slew of benefits for almost every possible layer of society. One common criticism is that his administration was heavy on welfare handouts, despite the fact its Pemandu chief had earlier warned of the country’s bankruptcy should our deficit be allowed to continue. Malaysia, as a result, is in its 15th consecutive year of a budget deficit, and although the government expects this budget deficit to be reduced to 4.7 percent in 2012 from 5.7 percent last year, this will be achieved only given a 5-6 percent economic growth (something economists including from the Malaysian Institute of Economic Research have expressed serious doubts over).

So the budget’s ballooning size did not come as a great surprise, especially for political pundits whose every second sentence over the last few months has been to speculate when the 13th General Elections will be called. If this is truly an election budget – and the stakes are extremely high at both state and national levels – how exactly will this budget affect state administrations? This is a particularly necessary question to explore given political competition for state governments between the Barisan and Pakatan coalitions.

There are several forms of financial contributions made by the Federal Government to all the 13 state governments in Malaysia. They are categorised into the following: Population size grant, State road-maintenance grant, Local and municipal council grant, Service payments, Grant under the concurrent list (of the Federal Constitution), Local and municipal council grant for street lights, Road slope maintenance grant, and a Grant based on development of the economy, infrastructure and prosperity levels.

All 13 states receive some form of allocation under each of these categories. In 2010, Kedah, Selangor, Sabah and Sarawak were also given additional “Annual special grants”, whilst Perlis and Kelantan were given grants due to operational account deficits. Finally, Sabah and Sarawak were given RM120 million each in relation to their petroleum resources.

In the year 2010, Penang received a total contribution of RM144.28 million from the Federal Government, Selangor received RM589.8 million, Kedah RM296.79 million and Kelantan RM287.8 million. In total, the Federal Government distributed RM4.75 billion to all 13 states in 2010 (Source: Actual Grants to State Governments in 2010, Estimates of Federal Government Expenditure, 2012 Budget, Treasury). This represented 2.48 percent of the 2010 budget totalling RM191.5 billion.

The 2012 Budget documents, however, unfortunately do not provide a breakdown of how much the Federal Government has allocated to each of the state governments in the coming year. This is because the budget document (as downloaded on the Treasury website) lists down expenditures categorised into respective ministries – no other format is provided. Of course, it would have been possible for the office in charge to extract the values of grants allocated to each state for the purposes of more detailed analysis.

This is an issue that Parliamentarians perhaps will be raising during the Budget Debates. Only then would researchers have access to estimated financial allocations to states like Penang and Selangor.

Until then, all we have are hints at how the state governments are expected to benefit out of the 2012 budget through programmes run by the Federal-level ministries. What are some of these ‘benefits’ under the budget? The list below is representative of all departments and ministries that explicitly state “State Government” as being a target “customer” of a particular programme.

• The Auditor-General’s Department will spend RM59.8 million to audit all state governments’ accounts;
• The Public Service Commission will service the state governments of Penang, Negeri Sembilan, Malacca and Perlis; and act as mediator between the Sabah state government and Federal Government under the Sabah Secretary Office;
• The Attorney-General’s Office has representatives in all Legal Advisor Offices of the respective state governments and will spend RM34.65 million in total (RM3.68 million in Penang, RM3.38 million in Selangor, RM2.13 million in Kelantan and RM2.85 million in Kedah);
• The Treasury will spend RM6 million to process loan applications from state governments (and other loan management duties in relation to development projects);
• The Ministry of Natural Resources and Environment (MONRE) will spend RM28.64 million to assist state governments in Peninsular Malaysia to settle their land management arrears, and other duties (Federal Government land acquisition operations, and implementing a ICT-based land management system).
• The Ministry of Housing and Local Government deals largely with local government issues, but one programme specifically listed as “Local government” or Pihak Berkuasa Tempatan has as its objective to assist, coach and encourage socioeconomic development programmes and services, which will be allocated RM331.3 million. (The total Ministry’s budget is RM1.63 billion, where other entries on the list include solid waste management, town and country planning, landscaping, housing, policy, management, and the fire department). This entry is also included here, as local and municipal councils fall under the jurisdiction of state governments

This list may not be exhaustively representative of other intrinsic benefits that may accrue to state and/or local governments (for example, agriculture departments which are federal offices seconded to state governments, amongst others). However, the sum total of these items which have been explicitly tagged as benefiting state governments come up to a paltry RM460 million, a tiny fraction of the total budget’s RM232.8 billion.

This should not be too surprising, nevertheless, given the extremely centralised manner in which budget and policy-making has grown to become, a point I have belaboured in other past columns here. The budget for the Prime Minister’s Department, for example, has grown from RM11.9 billion in 2010 to RM15.9 billion in 2011. In 2012, this seems to take a slight cut down to RM13.5 billion, a positive sign, but the point is that the Prime Minister’s Department alone takes up 5.8 percent of the total national budget.

Compare this to the Selangor state government budget (one of the larger state budgets in Malaysia), which totals RM1.3 billion annually. And the significance is even more stark when compared to the smaller state government budgets in Penang (RM900.35 million), and Kelantan (RM53.24 million).

In answering the question of just how much the state governments benefit from the 2012 national budget, one is brought back to the issue of the federal-state structure of government administration. The fact that the figures show minimal direct contributions by the Federal Government to state and local governments is merely a reflection of the ways in which policies are set and implemented. Macroeconomic and social policies are still largely governed by the centralised Federal Government, and hence that is where the money lies.

Decentralisation of government policy would encourage greater local participation in the decision-making process. Under the Barisan coalition, this trend is nowhere near taking place in Malaysia. It is clear that as long as Putrajaya intends to micro-manage policy and execution (even of issues that could be much better managed at the local constituency levels, like community public transport and solid waste management), the purse strings will be held tightly at the top of the food chain.

As the general elections approach, some state governments may raise this as an issue of contention. After all, it is extremely difficult to demonstrate to an electorate the changes in a state if its government is not in fact in control of factors affecting their livelihood. Control of funds is tied directly to control of one’s resources: the election issues of, for example, management of water resources, and payment of oil royalty (in Kelantan, Terengganu, Sabah and Sarawak) will therefore be recurring themes. Until then, state governments will have to be satisfied with a top-heavy budget, taking whatever remains that do trickle down to them.

Tricia Yeoh blogs on triciayeoh.com

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