“Sarawak is already making a lot of money. Its budget is RM11 billion. That is very high, compared with, say, Kedah, whose budget is only RM700 million,” Mahathir told FMT in an interview.
“We have to remember that Malaysia is a federation. The richer states must share their wealth with the poorer ones,” he said.
But it was not always that way. “Initially, of course, both Sarawak and Sabah were poor, and the federal government had to support them. Now, they are no longer poor, and it is time that they support the poorer states,” he said.
Sarawak’s status as a high-income state was revealed in July when calculations by the World Bank office in Malaysia were posted online, showing Sarawak as having the fourth highest per capita gross national income of US$16,560 (or RM77,997 based on the July exchange rate).
Kuala Lumpur was highest at US$29,967 (RM141,144), followed by Labuan (US$19,117 or RM90,041) and Penang (US$16,660 or RM78,468). Selangor ranked fifth with US$14,291 (RM67,310). In the bottom three were Kedah, Perlis and Kelantan.
World Bank economist Apurva Sanghi, who posted the data, noted that Sarawak had high income but also a high poverty rate of 10.8% in 2022, while Perlis, not a high-income state, had a lower poverty rate of 4%.
Sarawak’s fortunes have grown significantly over the last 10 years, from a GNI level of RM55,000 in 2014. A sizeable portion of its revenue is attributable to its takings in the oil and gas (O&G) sector.
In 2023 alone, Sarawak earned RM2.8 billion from royalties calculated at 5%, as provided for under the Petroleum Development Act 1974.
Sarawak was also allowed to levy sales tax on its O&G output since 2020. As a result, in 2023 the state raked in an additional RM3.4 billion in sales taxes.
Petroleum revenues
Tengku Razaleigh Hamzah, who served as finance minister between 1976 and 1984, recalled that in Malaysia’s early years, the individual states, including Sabah and Sarawak, had very limited resources.
For that reason, all 13 states agreed to pool their resources for the collective benefit of the fledgling nation.
That thinking motivated the enactment of the Petroleum Development Act which provided for the creation of Petronas, which was given the sole right to all onshore and offshore O&G within the country’s boundaries.
“With the O&G resources available, Malaysia was able to have a new beginning,” said Tengku Razaleigh, who is widely credited as being the founder of Petronas.
“We could (now) make use of the oil wealth to build up the country, let it grow together, and let the people benefit,” he said, adding that the industry has gone on to create “thousands, if not millions of jobs”.
Prior to the law being enacted in 1974, all petroleum exploration and related activities in Malaysia were carried out by members of the so-called global “Seven Sisters”, the seven major oil companies that dominated the world’s petroleum industry from the mid-1940s to the 1970s.
The enactment of the law and the formation of Petronas marked a shift towards the nationalisation of oil resources and a revenue-sharing agreement between the states.
“We wanted to make sure that there was no quarrel between the states and the federal government, and between the states. So we made sure that the payment was the same for everybody,” Tengku Razaleigh said.
He said the royalty formula was the brainchild of Abdul Rahman Yaakub, the then Sarawak chief minister.
“If you found oil, we would give you 5% of its value. We discussed that with all the state governments after referring to the federal cabinet, and they agreed that is the best way to go,” Tengku Razaleigh said.
Since then, various states have voiced dissatisfaction with this 5% cut over the years and petitioned the federal government for a bigger share of oil royalties.
More recently in 2024, the Sarawak government has sought to transfer O&G authority within its territory from Petronas to state-owned Petros, a move which would also transfer greater O&G revenue to the state.