USM budget – RM1.2bn; Penang government budget – RM0.7bn

The federal government runs a RM232bn budget but Selangor has to get by with only RM1.6bn and Penang RM0.7bn. Even USM has a larger budget than the Penang state government.

This is one of the reasons why decentralisation is necessary.

Moreover, decisions, financial or otherwise, that affect local communities are best made at the local level.

This the principle of ‘subsidiarity’ and it is the reason why local governments must be given more autonomy and made more accountable and democratic.

This excellent piece by Zairil Khir Johari was published in The Edge:

Decentralisation in a super-centralised state

Decentralisation – an increasingly loaded term these days – can mean different things to different people. While it technically refers to the dispersal of decision-making authority from the centre to the periphery, its practical manifestations can take on a myriad of forms, with consequences that are just as varied.

Malaysia, though in name a federation, has over the years transformed into a highly centralised state with power over matters such as public transport, water services and solid waste management increasingly vested in the hands of bureaucrats sitting in the federal capital. That decentralisation is needed is a given. So how then should the process take place, and how devolved should the structure of governance be?

Fortunately, in the Malaysian context, there is little need for reinvention because our federal structure already provides a mechanism for decentralised governance. Unfortunately, over the years this structure has been altered and reconstructed to produce not only a highly centralised authority, but one that is systemically configured to hinder and inhibit local decision-making.

The answer therefore requires no great restructuring, but a simple reversion to what should have been. Broadly speaking, decentralisation in Malaysia should take the form of three main thrusts: fiscal, administrative and political.

In an increasingly globalised and urban world where growth and development flourish in economies of agglomeration and competition between cities, it follows that there should be less dependence on a centralised authority, especially where fiscal matters are concerned.

Yet in Malaysia, to say that our states, much more our cities, are financially limited is to understate the situation. As a proportion to the federal budget, state budgets are shrinking, with the combined total of all state budgets dropping to about 6 per cent today compared to 25 per cent two decades ago.

In real terms, our most populous and most developed state, Selangor, announced a budget of RM1.6 billion last year, compared to the federal government’s RM232 billion. In contrast, its counterpart Taipei runs an annual budget of RM19 billion or 10 per cent of the Taiwan central government budget.

Moving down a rung, Taiwan’s second city Kaohsiung operates on a budget of RM13 billion, while Malaysia’s second state Penang is expected to get by with a whopping RM740 million. However, if one feels that the comparison of Penang to Kaohsiung is unrealistic, then consider the fact that the 2011 budget for Universiti Sains Malaysia (USM) in Penang totals RM1.22 billion. Yes, in other words, the Penang state government operates with half the budget of its local university.

This is clearly a flawed model. What is needed is a more equitable formula of revenue-sharing through the restructuring of capitation and economic development grants. For a state that contributes half of Malaysia’s electrical and electronic exports, nearly a third of total manufacturing exports, two thirds of medical tourism receipts and nearly one tenth of the entire country’s GDP, Penang deserves much more than the current 3.8 per cent of total federal grants that it receives. The same rationale applies to all other states.

However, lack of financial resources is only half the problem. Ever since the 1976 amendment to Article 111 of the federal constitution, state governments are prohibited not only from borrowing but even from providing guarantees for state companies, except with federal approval. In other words, unless a particular state government is in favour with the powers at Putrajaya, they will not only be starved of money but they will also have no avenue for raising funds.

At the same time, fiscal decentralisation must be accompanied by a reflective dose of administrative decentralisation. This refers to greater independence in governance, including civil service appointments and the apportionment of roles and responsibilities.

Take public transport as a case in point, an issue that is typically administered at the local municipal or city level. Instead, in Malaysia buses, taxis and all manners of public transport are managed by the federal government. However, if one were to seek the transport ministry for any related problems, one would be barking up the wrong tree. As it is, the transport ministry only oversees sea and air transport, as its land and rail functions have already been transferred to the Land Public Transport Commission (SPAD), which comes under the jurisdiction of the Prime Minister’s Department.

This trend is not confined to public transport. Even public housing, through the recently-launched 1Malaysia Housing Programme (PR1MA), is now parked under the PM’s Department, a super ministry that stables 10 frontbenchers excluding the Prime Minister.

What we see here is no longer a case of over-centralisation, but one of “super-centralisation”, when even federal ministries now find themselves emasculated as more and more power is placed under the purview of the Prime Minister. This is reflected by the doubling of the PM’s Department’s budget from RM6.9 billion in 2008 before the current administration to RM13.5 billion this year. The time of government knows best is indeed over. It has been replaced with the executive knows better.

This super-centralised structure notwithstanding, the fact remains that it is grossly inefficient for someone sitting in Putrajaya to make key decisions on public transport, housing, water management, garbage collection, education, health and religion for cities they may not even have visited. All of the above can and should be managed by authorities at a more devolved level.

Finally, the question of decentralisation is inherently tied to the political realm. Simply devolving resources and responsibilities to lower levels of authority is not enough if it is not accompanied by a mechanism for political accountability.

On this note, we return full circle to our original premise. Nothing new is needed. We simply have to return to what used to be constitutionally provided for: local government elections. This will ensure that decision-making authority is tempered by direct accountability. Besides better reflecting the needs and desires of the local community, it will also foster healthy and much-needed political and economic competition within and between cities.

For the record, the elected Penang municipal council before the abolishment of local government elections in 1965 was operating on a budget of RM31 million, the highest in the country by far. The council owned power plants, constructed dams and ran the electric tram service. It was a true reflection of its dynamic population.

Penang has of course now made the first move towards the restoration of local accountability by recently passing the local government election enactment. Though there is no guarantee that the courts will allow it to proceed, failure will not be for lack of trying.

At the end of the day, what is required is simply political will. Over the years, our country has consolidated power at the centre to the point of being super-centralised, where resources and decision-making authority lie not just within the federal government but increasingly within the executive office of the Prime Minister.

Such a situation is untenable in the long run, and we must therefore begin to think about decentralisation of our fiscal, administrative and political structures in order to ensure accountability and efficiency of governance. And to do this, we need only to rediscover our country’s original spirit of federalism.