The political stability of democratic Barbados has been the envy of the Caribbean since independence in 1966. As a former British colony, the country parallels the British electoral and parliamentary systems, which has ensured regular and fair elections and the orderly transfer of power between political parties. The country is a member of the British Commonwealth, with the British monarch the constitutional head of state, represented by a governor general appointed by the Crown. The head of government is the prime minister, who presides over a cabinet appointed by the governor general on his advice. The bi-cameral, or 2-chamber, parliament consists of a 21-member Senate appointed by the governor general and a 28-member House of Assembly, elected by popular vote every 5 years.
Despite lively exchanges of views in parliament, Barbados's political system is based more on consensus than confrontation. Modern Barbadian politics has been dominated by 2 main parties, the Barbados Labour Party (BLP) and the Democratic Labour Party (DLP). Both are broadly social-democratic in outlook, favoring a mixed economy with a strong private sector and a measure of government intervention. The DLP is rather more left of center than its rival, while the BLP was for many years identified with the small, economically dominant, white elite. The BLP won elections in 1994 and again in 1999, capturing 26 out of 28 parliamentary seats with an unprecedented 64.8 percent of the vote. The National Democratic Party (NDP) has not held office.
Government has a strong and direct impact on the economy through its management of the large public sector, its tax policy, and its encouragement of foreign investment in key sectors. During the recession of the late 1980s, for instance, the DLP government was forced to introduce an 8 percent pay cut for public-sector workers in a bid to reduce state expenditure. In 1999, the BLP government finally agreed to restore this pay cut in 3 stages over a given period. The government regularly meets with representatives from the private sector and the trade unions, and a series of tripartite protocols covering wages, prices, and working conditions has revealed an unusually strong degree of consensus.
Taxation has been an important economic factor in recent years as governments have tried to balance the need for increased revenue with goals of social equality. In 1997 a radical change took place with the introduction of value-added tax (VAT) to replace 11 different indirect taxes . The immediate result was greatly improved tax revenue, which reduced the government's fiscal shortfall from the equivalent of 2.5 percent of GDP in 1996 to 0.3 percent in 1997. However, in the same year, the VAT forced prices up and led to inflation of 7.7 percent. The government responded by removing the VAT from 50 essential food items, with the result that consumer prices fell by 1.3 percent in 1998, benefiting the basic household expenditure of poorer families. The basic income tax is payable on earnings greater than BDS$625 per month, with higher rates for larger incomes.
The Barbadian government is active in encouraging foreign investment in tourism, manufacturing, and the informatics (data processing) sector. It offers a range of financial incentives to prospective investors, including tax concessions, and has made considerable efforts to attract offshore financial businesses, such as foreign banks and insurance companies, by introducing the legal and fiscal regulation required. So far, moves to privatize state assets such as the Barbados National Bank, the Caribbean Broadcasting Company, and the Barbados National Oil Company have been planned but not implemented.