Climate must shape future federal-state deals, says Liew

KUALA LUMPUR: Climate considerations must be integrated into future federal-state negotiations as Malaysia rethinks its fiscal structure, says deputy finance minister Liew Chin Tong.

Responding to a question on government regulation of natural resource development and efforts to prevent environmental exploitation, Liew said Malaysia’s existing federal structure was built around natural resources as a key source of revenue for state governments.

He said this has created incentives for states to depend on activities such as logging, land reclamation and urban expansion to generate income.

Liew said mechanisms such as ecological fiscal transfer (EFT) allocations should be expanded to allow states to receive compensation for conserving natural resources, rather than relying on environmentally damaging activities.

“If a state, for example, preserves a certain forest, it would be compensated,” he said at a fiscal responsibility summit organised by the Institute for Democracy and Economic Affairs (IDEAS).

“We will need much more discussion along those lines so that states get resources, while at the same time, they don’t necessarily have to sell logging rights.”

He warned that states may continue to rely on natural resource extraction for revenue without reforms, creating long-term environmental risks.

Evolving federal-state relations

In his keynote speech at the summit, Liew said climate change must be incorporated into future federal-state fiscal arrangements as Malaysia moves towards a model of “constructive federalism”.

He said the federal and state governments must move beyond adversarial relations and work together to shape Malaysia’s future.

“Shared resources with shared responsibilities,” he said.

Liew said Malaysia’s development should be driven by geographically anchored growth centres, citing Johor, the Penang-Kulim semiconductor cluster, Sarawak’s energy sector, and Kuala Lumpur’s role as a regional city.

“As evidenced by the negotiation of the Malaysia Agreement 1963 (MA63), I think the federal government is much more ready to negotiate with the states,” he said.

He added that Prime Minister Anwar Ibrahim was also receptive to developing new federal-state agreements.

Liew cited the recent transfer of regulatory authority over Bintulu Port to the Sarawak government as a milestone reflecting evolving federal-state relations under the MA63 framework.

He said Malaysia must move towards a system where states can grow economically while preserving environmental sustainability.