Annexed as a colony of the British Empire on 10 October 1874, Fiji gained its independence exactly 96 years later, on 10 October 1970. For the next 17 years Fiji remained a British-style parliamentary democracy within the British Commonwealth.
In April 1987, the Alliance Party (AP), which had ruled Fiji since independence, was defeated at the polls by a coalition headed by the Fijian Labor Party (FLP) and the National Federation Party (NFP). The defeat represented a momentous shift in Fijian politics by introducing for the first time a substantial Fijian Indian presence in the government (although the coalition's leader and new prime minister was an indigenous Fijian, Dr. Timoci Bavadra). The new coalition moved power away from Fiji's traditional rural oligarchy and towards its long under-represented urban small-business and working class. Seeing its position threatened, the old order turned to racial politics, and the eruption of ethnic tension that resulted provided the pretext for a coup a month later led by Lieutenant-Colonel Sitiveni Rabuka. Four months later, fearing foreign intervention, Fiji's parliamentary leaders brokered a power-sharing accord between the AP and FLP-NFP coalition. But the newly promoted Brigadier Rabuka, feeling the accord had sacrificed the coup's central aim of securing indigenous domination, staged a second coup that revoked Fiji's 1970 constitution and declared the country a republic.
Two months later civilian government was restored, though it excluded the FLP-NFP, and a new constitution was drafted. In the first election under the new constitution in May 1992, a coalition led by now-Major General Rabuka won office, and he became prime minister. A series of crises over budgetary matters forced an early election in February 1994. Although Rabuka survived, dissatisfaction mounted at his government's failure to address the country's political divisions and its economic crises. Heavy out-migration by Fijian Indians resulted in a crippling flight of capital and expertise.
In June 1997 a new and more equitable constitution was adopted. In the first election under it in May 1999, the Rabuka government was overwhelmingly defeated, and a new FLP-led coalition took office under Fijian Indian prime minister Mahendra Chaudhry. While Chaudhry won the election on a promise of better economic management, his victory also re-kindled fears of a Fijian Indian "takeover." Protests by indigenous groups led to widespread civil violence and rioting against Fijian Indian businesses, culminating on 19 May 2000 with the seizure of the government buildings by armed extremists. After holding the cabinet at gunpoint in a 2-month long hostage drama, the extremists managed to have the president and new government dismissed by the military on July 5. Although the military subsequently restored the civilian government on July 18, and discussed the drafting of a new constitution, Fiji's political stability and international credibility remain grievously damaged. Prime Minister Laisenia Qarase was given a second title—Minister for National Reconciliation—to highlight the job that lay ahead of him in the coming years.
Fiji's revenue base is taxation. In 1998, according to the Fiji Islands Statistics Bureau, 58.4 percent of its revenue (US$251.7 million) came from income tax , estate and gift duties , and 27.0 percent (US$116.1 million) from customs duties and port dues. Its revenue shortfall for that year was US$917.8 million. Quarterly indicators from 2000 suggest that the imbalance is likely to worsen. Economic reforms by the government in 1992 designed to stimulate business saw the top individual and corporate tax rate drop to 35 percent, and a new 10 percent value-added tax (VAT) was introduced on goods and services, replacing previous sales and excise taxes . Attempts by the government to re-ignite the economy after the 2000 coup have followed a similar tack: the 10 percent VAT (removed by the previous coalition) was reinstated, and the corporate tax rate was reduced to 34 percent, with similar cuts scheduled for 2002 and 2003. With these measures, government revenues will be reduced and lower-income families will have to shoulder a proportionally larger tax burden.