KUALA LUMPUR: Federal financial grants to state governments are a constitutional obligation rather than discretionary assistance, Senator Dato’ Ahmad Ibrahim said during a debate on the Capitation Grant Bill 2026 in the Dewan Negara on Wednesday.

Speaking in support of the Bill, Dato’Ahmad stressed that the payments are mandated under Article 109(1)(a) of the Federal Constitution, read together with Part I of the Tenth Schedule, which requires the Federal Government to provide financial allocations to states.

“The grant provided under this Bill is not a goodwill payment. It is a constitutional responsibility of the Federal Government to the states,” he said.

The grants, drawn from the Federal Consolidated Fund, are intended to assist state governments in carrying out their administrative duties and delivering public services.

Dato’Ahmad noted that the current formula for the capitation grant is based on population size, but questioned whether a simple per capita approach adequately reflects the realities of a federation as geographically and economically diverse as Malaysia.

He pointed out that Selangor has a population of more than seven million people, while Penang has around 1.8 million.

In contrast, Sarawak covers approximately 124,450 square kilometres with a population of about 2.9 million, while Sabah spans around 73,904 square kilometres with roughly 3.9 million people.

According to him, the cost of providing infrastructure and public services can vary significantly depending on geography and accessibility.

“The cost of building one kilometre of road in an urban centre is very different from constructing roads in remote areas such as Baram, Belaga or Ulu Kapit,” he said.

He added that delivering healthcare facilities and other services in remote communities accessible only by river or logging roads is also considerably more expensive.

In this regard, Dato’Ahmad said fiscal fairness should not be interpreted as equal allocations, but rather ensuring each state has the financial capacity to deliver comparable levels of basic services.

He also reminded the House that federal–state financial arrangements have historical roots linked to the formation of Malaysia, particularly the Inter-Governmental Committee Report 1962, which helped shape the constitutional framework for Sabah and Sarawak when the federation was formed in 1963.

The Federal Constitution provides for special grants to Sabah and Sarawak under Article 112C, while Article 112D requires these grants to be reviewed periodically through negotiations between the Federal and state governments.

Looking ahead, Dato’Ahmad suggested Malaysia could strengthen its fiscal federalism framework by reviewing the capitation grant formula to include factors such as state size, cost of service delivery and rural development needs.

He also proposed studying fiscal equalisation systems used in other federations, including Australia’s Horizontal Fiscal Equalisation model and Canada’s Equalization Programme, which aim to ensure states or provinces have comparable fiscal capacity to deliver public services.

“A strong federation is not one that centralises power in one place, but one that balances the needs of all its regions — Peninsular Malaysia, Sabah and Sarawak,” he said, while expressing support for the Capitation Grant Bill 2026. -UKASnews