The first settlement in Belize was established by a shipwrecked British seaman in 1638. The British government began administering the territory in 1786 and made it a crown colony in 1871. Self government in Belize was first granted by the British in 1964, when the country was still known as British Honduras. In 1973 the country's name was changed to Belize, and by 1974 a 2-party political system had emerged. This system continued after Belize gained independence from Britain on 21 September 1981. At the time of independence, Guatemala claimed a portion of territory on the western border of Belize. This border continues to be a point of contention between the countries, even after Guatemala formally recognized Belize's independence in 1991.
Under the independence constitution of 1981, the executive branch of the government is made up of the prime minister and the cabinet. Cabinet ministers are members of the majority political party in the Parliament, or National Assembly, which is made up of 2 houses: a 29-member House of Representatives, and a Senate of 8 appointed members.
A parliamentary democracy, Belize is a member of the British Commonwealth. The head of state is Queen Elizabeth II. She is represented in Belize by a governor-general, whose role is largely ceremonial. In 2000, Sir Colville Young held the post. Chief administrative duties fall to the prime minister, a position held by Said Musa, elected in August 1998.
The country's 2 main political parties are the People's United Party (PUP), established in 1950, and the United Democratic Party (UDP), which was established in 1974. The UDP is considered the more conservative of the 2 parties. It has a strong following in the urban Creole population. The PUP grew out of the trade union movement and has traditionally drawn support from the mestizo population. Both parties have curbed government spending to lower the deficit and they have financed this deficit with foreign aid. Both parties have sought to expand the manufacturing base, and have tried to diversify trade. The 2 parties differ on tax policy.
The UDP, after winning elections in 1993 for only the second time in history, levied a 15 percent value-added tax (VAT) on goods and services. This VAT was instituted to offset revenue losses stemming from Belize's entry into the Caribbean Community (CARICOM) in 1974, which had lowered import and export tariffs . The move was strongly criticized by the PUP, and during the run up to the 1998 election, the PUP vowed to repeal the tax. The PUP won the 1998 election, taking 26 of the 29 seats in the House of Representatives, and Said Musa became the country's prime minister.
Musa's administration made good on election promises. The VAT was abolished and replaced by an 8 percent sales tax. Taxes on the purchase of petroleum products, alcohol, and tobacco increased. Foods and medicines, as well as basic utilities such as water and electricity, were exempted from the tax, as were small businesses. The personal income tax was reduced to a maximum level of 25 percent. PUP officials hoped the tax policy would stimulate business activity and raise consumer spending so that government revenues would increase despite lower tax rates. The PUP also promised to decentralize government power, build 10,000 new houses, and create 15,000 new jobs.