This is the second in a series of three policy papers on contemporary challenges surrounding federalism in Malaysia today, the first of which was Policy Ideas No. 59, titled “Restoring the Spirit of Federalism: Policy Options for a New Malaysia”. This paper will explore more exclusively the political influences stemming from the federal government and how to mitigate for such effects for a more well-functioning, sustainable fiscal regime of the country’s states.

The changes in Malaysia’s recent political landscape are meaningful and consequential on the country’s complex dynamics of federal-state relations. Historically a contested relationship where the centre influences much of the resource allocation and distribution to the periphery, this policy paper traces how this took shape during the early years of Malaysia’s formation and brings to the fore current developments. It argues that the federal government has strategically determined resource allocation through a number of means including through party-centred state administrations, administrative encroachment for greater political control, constitutional and legal requirements and by use of the politico-bureaucratic complex. The paper ends by proposing several recommendations that the government should consider for future adoption.