Corrected on 6 Nov 2009 at 11.20am
PETALING JAYA, 5 Nov 2009: The federal government has too much discretion to decide on the annual budget allocation for states, hence making it difficult for states to plan their development, Pakatan Rakyat-elected representatives said.
At a forum on the 2010 Budget last night, Petaling Jaya Utara Member of Parliament (MP) Tony Pua said an unhealthy culture had developed due to the uncertainty of how much would be allocated each year.
“We have to keep going to the prime minister and saying, ‘Tolong sikit, we want to expand the Mengkuang Dam in Penang’, or ‘YAB (Yang Amat Berhormat), tolong, we want to set up a monorail system‘, or ‘We want to clean up Sungai Klang‘,” said Pua.
Pua said this was an unhealthy way to allocate resources as it was too dependant on whether or not the prime minister was wiling to entertain the requests for financing.
He said the problem was further compounded by insufficient funds being allocated for a state’s administration. “This is not the way to develop and run a country.”
Fixed income for states
To tackle the uncertainty in budget allocations, Pua advocated a system where at least 20% of the tax revenue collected from each state would be returned to the state.
“Selangor’s tax revenue from companies and individuals was RM16 billion. However, the state was only allocated RM247 million in the 2010 Budget. If 20% of the tax revenue was returned to the state, we should actually be allocated RM3.2 billion,” Pua said.
Pua added that the current uncertainty about how much a state would be allocated each year also hindered long-term planning.
“If we knew that we would get at least 20% of the tax revenue from the state, then we can plan. Otherwise, how will we plan?” he said.
Pua noted that over the years, economic power had become centralised with less and less tax revenue being allocated back to the states by the federal government.
(Corrected) “In the 1990s, the combined states’ budgets (i.e. expenditure) constituted 25% of the federal budget. But today, it constitutes less than 9% of the federal Budget.” He further clarified that in terms of tax revenue returned to the states, the percentage was even smaller. For example, for Selangor, it was RM247 million out of RM16 billion, and for Penang, it was RM127 million out of RM3 billion.
“This means most of the tax revenue collected has not been returned to the state government,” Pua said.
Grant Commission
Selangor Menteri Besar Tan Sri Khalid Ibrahim, who opened the forum, proposed the setting up of a Grant Commission to study expenditure and development needs and allocate funds accordingly between the states.
Pua (right) and Khalid at the forum
He said that such a commission should comprise representatives from political parties, federal and state governments, and budget and financial experts.
“The budget should be based on an equalisation programme to ensure equal development in all the states. We don’t want there to be a big gap between the developed and less developed states,” Khalid said.
Khalid said that the budget allocation should be motivated by development rather than political considerations and the commission would ensure the correct focus when allocating resources.
Double standards
Asked to respond to Prime Minister Datuk Seri Najib Razak‘s announcement today that Kelantan would be awarded wang ehsan or compassionate payment for its oil revenue, Pua said oil royalties were different from federal budget allocations.
“It’s different from the 20% return of income taxes. Oil royalties form a natural income which are actually the right of the state [according to an existing contract],” he said via e-mail today.
Pua noted, however, that Kelantan was being treated differently from neighbouring Barisan Nasional (BN)-controlled Terengganu, which receives oil royalty directly from the federal government.
“The federal government is refusing to give the royalty payments to the (PAS-controlled) Kelantan government directly,” Pua said. “Instead, they are channelling the payments through federally-controlled agencies.”
Pua said that when PAS took over Terengganu in 1999, the federal government froze oil royalty payments and started a “wang ehsan” programme, similar to the one announced today for Kelantan. However, when BN won back the state in 2004, the oil royalty was reinstated.
“It’s double standards, abuse of power, political discrimination and manipulation, nothing less,” he said. 
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Tan says
It’s true the federal government was biased in terms of development expenditure allocation towards PR-controlled states. Perhaps, they only solution for the PR state government to generate more revenue is to enhance the efficiencies of the respective SEDC and be proactive towards would-be investors.
K S Ong says
It is tough being in the opposition, despite administering (rather than controlling) certain states. Being vocal against corruption, and for transparency and accountability, what had been and still is good for BN is out of the question for Pakatan.
Just imagine if what is now being practised, is given to BN if they ever become the opposition – the critics will be out immediately condemning that Pakatan is just the same as the BN.
It would appear, being thick-skinned and able to bear and put up with all kinds of criticisms are the hallmarks of the present government. Management by crisis comes to mind. So far it seems to work in their favour because everyone has a price and being in control of main financial sources, the PM can settle whenever and wherever necessary, and not necessarily being fair to the people.