Fiscal transfer debate should focus on local councils, says assemblyman

KUALA LUMPUR: Discussions on federal-state fiscal transfers should place greater emphasis on local councils as they are responsible for many of the public services Malaysians use every day, says Bukit Gasing assemblyman Rajiv Rishyakaran.

Rajiv said much of public discourse has centred on state governments, even though local councils play a more direct role in delivering services taking care of road maintenance, drainage, parks, business licensing and town planning.

“The local government is significant to your life,” he said during a panel session at a fiscal responsibility summit organised by the Institute for Democracy and Economic Affairs (IDEAS), a think tank, here today.

Rajiv said state governments in Malaysia operate with relatively small budgets compared with their counterparts in countries such as Australia and the US, limiting their ability to make a greater impact on people’s daily lives.

“If the Selangor government ‘closed shop’ today, you wouldn’t really feel any difference.”

Rajiv also backed local council elections, saying they would strengthen councils’ legitimacy given the role they play in delivering public services.

He said elected councils would give residents a greater say in how local funds are spent and the services provided in their communities.

Focus on how transfers are decided

Meanwhile, Institute of Strategic Analysis and Policy research director Woon King Chai said the more pressing issue was not the amount of funding states receive but the lack of a clear framework governing how allocations are made.

During the panel session, Woon said the absence of clear formulas allows political intervention in transfer decisions, making the process less transparent.

“When such transfers are not rules-based, they are neither predictable nor transparent. Then, it becomes a big problem.”

He said a transparent and predictable system would hold both the federal and state governments accountable by ensuring Putrajaya fulfils its funding responsibilities while requiring states to account for how the money is spent.

He reiterated that the significant role local councils play in people’s daily lives strengthens the case for revisiting local council elections.

The panel discussion followed the launch of IDEAS’ report titled, “The governance of fiscal transfers in Malaysia: is it rule-based, predictable, and transparent?”, which found that Malaysia’s federal transfer system does not function as a true equalisation mechanism, with funding not consistently directed towards states with a weaker fiscal capacity.

The report said transfers reduce fiscal disparities by only about 20%, leaving significant gaps between states.