After 2 decades of political turmoil in the 1970s and 1980s, Grenada has returned to a state of stability and constitutional government. The overthrow of autocratic and populist Prime Minister Eric Gairy in 1979 ushered in 4 years of socialist -oriented government until factional infighting and the murder of Prime Minister Maurice Bishop triggered the U.S. intervention of 1983. Short-term, unstable political alliances followed until 1995, when the New National Party (NNP) won a narrow majority. Led by Keith Mitchell, the NNP then won an overwhelming victory in January 1999, taking all 15 of the island's parliamentary seats.
As the leader of the majority party, Mitchell, the prime minister, was appointed by the governor general of the island, who was appointed by the Queen of England. The governor general also appoints the cabinet, on the advice of the prime minister. The bicameral (2 legislative chambers) parliament consists of the 15-member National Assembly, whose members are elected by popular vote to 5-year terms, and of the 13-member Senate, 10 of whose members are appointed by the government and 3 of whose members are appointed by the opposition. The country's legal system is based on English common law, and the system is overseen by the West Indies Associate Supreme Court, a representative of which body resides in Grenada.
The NNP is pro-private sector, favoring foreign investment in tourism and manufacturing to stimulate growth. It has also attracted former supporters of Eric Gairy and Maurice Bishop by pledging to combat unemployment and poverty. The other parties were soundly beaten in the 1999 elections and do not differ significantly in their approach to the economy.
Government policy is important in determining economic development, since the state sector remains substantial and potential foreign investors are influenced by such policy. The government has tried to reduce its public-sector financial commitments by reducing the number of civil servants, privatizing some assets, and converting some government agencies, such as the post office, into autonomous commercial enterprises. More controversially, it has begun to introduce performance-related pay schemes within the public sector, despite strong opposition from trade unions. The government has attempted to attract direct foreign investment by offering generous tax incentives and other financial benefits to companies interested in establishing themselves in the manufacturing and tourism sectors.
Taxation tends to be weighted towards indirect sales taxes rather than income tax , which the government has reduced. Government has tried to improve revenue collection through greater efficiency and has increased income from fees levied on offshore companies, particularly those in the new financial services sector. Even so, according to the Caribbean Development Bank, "Notwithstanding improvements in tax administration departments, revenue collection continues to be undermined by widespread exemptions, high levels of tax evasion and extensive non-compliance." In other words, many Grenadians and foreign companies alike do not pay the taxes that they owe to the government. Sales taxes, according to critics, affect the poorest sectors of the Grenadian population disproportionately, but the government believes that high income taxes act as a disincentive to private enterprise.