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Why decentralisation is the best bet for Malaysia’s economic growth

18 3 12
25.03.2019
MALAYSIA’s burgeoning middle class has high expectations for future economic development.But the nation won’t escape the ‘middle-income trap’ and won’t have socially-inclusive growth under current government policies.A range of reforms that deliver decentralised decision-making is needed to build the knowledge-led economy to propel Malaysia to the next level of development.

Malaysia’s current policy framework has its roots in the 1970 New Economic Policy (NEP) and its socio-political counterpart ‘Ketuanan Melayu’ (Supremacy of Malays).

NEP has succeeded in building a large Malay middle class that is informed, skilled and confident about its identity. But it’s also well aware that these two policies rooted in the past are not capable of transforming Malaysia into a developed nation.

SEE ALSO: Commentary: Will Malaysia become Southeast Asia’s clean energy leader?

To meet these aspirations, reform is urgently needed in three key economic areas. Each area requires a common reform component: the careful entrenchment of decentralised decision-making.First, the state’s administrative structure inhibits innovative policymaking and prevents effective oversight. The federal government is much larger and more cumbersome than state governments and has disproportionate power.Contrasting budgets and spending power reveal the imbalance between federal and state governments. The federal government has legal authority to impose income and sales taxes. But state governments must rely on land-related transactions and fees on small-ticket items like hawker licenses for independent revenue. The provision of most public services is done through branches of federal ministries operating at the state level.

State expenditure is determined by fiscal allocations from the........

© Asian Correspondent