States that are among the highest economic contributors consistently receive a lower proportion of federal funding year after year.
Malaysia’s budget historically mirrors the centralisation of government authority at the federal level. In 2021, the actual allocation to state governments amounted to a mere 2.4% of the total government expenditure in Malaysia.Notably, Selangor, Johor, and Penang emerged as the three largest contributors to Malaysia’s GDP in 2021, collectively generating RM574 million, or 63% of the national GDP.
On the other hand, traditionally less-developed and low growth states such as Kelantan, Terengganu, and Perak, benefitted the most. Despite jointly contributing only around 12% of the country’s GDP, they received 20% back from the federal government.The allocation gap is justified with the argument that we need to levelise economic development across Malaysia, so that we close the gap between top-performing states like Selangor and Penang, with that of Kelantan and Terengganu.
For instance, policies related to healthcare and education are centrally determined, but the number and type of schools, and the unique needs of the local community, were not taken into account – as long as the federal government determines that the policy works the best nationwide. But centrally run organisations are often mired in inefficiencies due to a lack of oversight by central committees, who are either too preoccupied or too ignorant to respond to local plights.
The development divide between states continues to grow, since the more productive states produce more over the years, and the less developed states continue the loop of inefficiency and lack of desire for growth. States with better economic development make more effective use of the allocation and are more likely to spend on high-growth sectors, benefitting not only the state but the whole of Malaysia.
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