Commentary: Johor state polls bring PM Anwar’s national revenue-sharing dilemma into sharp focus

Commentary: Johor state polls bring PM Anwar’s national revenue-sharing dilemma into sharp focus Elections in Johor are taking place against the backdrop of the increasingly loud demands by Malaysia’s richer states for larger slices of the national revenue pie, says CNA's Leslie Lopez. KUALA LUMPUR: Anwar Ibrahim faces a dilemma no peninsular prime minister has confronted before. Johor is demanding what Sarawak and Sabah have long sought: a bigger cut of federal revenue and special economic status. But unlike the Borneo states, Johor has no constitutional armour. The 1963 Malaysia Agreement and the 1974 Petroleum Development Act (PDA) leverage gave Sarawak and Sabah historical grievances and legal leverage. What Johor has is economic heft, a proactive palace and state nationalism that is growing louder by the day. A decisive win by the incumbent United Malays National Organisation (UMNO) in the Johor state poll on Saturday (Jul 11) would more than bruise Mr Anwar’s Pakatan Harapan (PH) coalition. It would arm the palace and the state government with a popular mandate to push harder for fiscal autonomy. Therein lies Mr Anwar’s dilemma. If he is forced to concede to Johor’s demands, he will invite copycat claims from other states. Penang has already raised the question of a greater revenue share. Selangor is watching the simmering budgetary brawl closely, together with the Malay-belt opposition states in the northern region now controlled by the right-wing Parti Islam Se-Malaysia (PAS). If he resists, he risks a confrontation with a state government armed with a strong mandate and a pro-UMNO palace. NEW TERRAIN This is new terrain for Malaysian federalism. For more than 60 years, the fault lines to the country’s federation pact have been east and west: Peninsular Malaysia and the two Borneo oil-producing states. The 1963 Malaysia Agreement was meant to bind the federation with Sarawak and Sabah as equal partners to the federation. That did not happen. Very quickly the pact became an arrangement shaped by peninsular dominance, East Malaysian deference and a source of irritation. Then came the 1974 PDA, which centralised oil revenue at the administrative capital of Putrajaya and fixed annual royalties of five per cent. While that rate has been recently negotiated to 20 per cent annually for the Borneo states, the PDA remains a source of serious tension, particularly between Mr Anwar’s government and Sarawak. This federation compact worked when UMNO and its allies in the Barisan Nasional (BN) coalition dominated politics with more than a two-thirds majority in parliament. The model BN applied was simple: Rich states paid, poor states received and the centre decided based on political loyalty. But that decades-long stranglehold was shattered in the 2013 general election, which marked a watershed in Malaysian politics. TABLES TURNED The next election in 2018 delivered the unthinkable when the UMNO-led BN fell on the back of the 1Malaysia Development Berhad (1MDB) fiasco. Since then, no coalition has come to power without the backing of the Borneo states. Sarawak and Sabah now enjoy an outsized bargaining power. Today’s Malaysia is governed by a unity government that is anything but unified. Mr Anwar’s PH holds office, but is dependent on UMNO-led BN and the Borneo parties for its parliamentary majority. With the centre so weakened, the Borneo agitation is spreading to the peninsula. New powerpoints have emerged; royal assertiveness, state-level nationalism and a growing realisation that Putrajaya’s coffers are no longer bottomless. JOHOR A TEST CASE Johor is fast emerging as a test case amid a state-federal tug-of-war going back since mid-2024. Tunku Ismail Sultan Ibrahim, the Johor regent, first raised the issue more than two years ago, arguing that “Johor does not belong to Malaysia. We are partners, so you must start treating us like partners”. He raised the rhetoric dramatically by claiming that Johor contributes approximately RM48 billion (US$11.8 billion) in tax revenue but only receives about RM1.4 billion through the annual budget, which amounts to less than 3 per cent. Mr Anwar has been trying to challenge this narrative. In June, with state elections looming, the prime minister said that the federal government had returned RM16 billion compared to the RM14 billion Johor contributed to the national coffers. But Tunku Ismail quickly rebutted that the state receives only between RM2 billion to RM3 billion, while the rest is largely made up of federal-controlled project spending. The palace retort has exposed the weaknesses to Mr Anwar’s claims and turned the revenue demands into a hot election issue. All of this is turning this weekend's state election into a verdict on Mr Anwar’s economic management. Unlike subsidies or financial handouts to appease a populace faced with pressures on living costs, revenue-sharing is a zero-sum conflict between the federal and the state. It is not merely a budgetary headache. At stake is also the architecture of the Malaysian federation itself - whether the centre’s long-opaque revenue allocation system can survive the pressure from rich states seeking a more transparent fiscal sharing framework.