The territory comprising today's Papua New Guinea was colonized in the 19th century by both Germany and Great Britain. The British territory was transferred to Australia in 1906. During World War I, Great Britain acquired the German territory and in 1920 transferred control of this territory to Australia as well. Australian policy and culture shaped much of modern Papua New Guinea, and the country remains a constitutional monarchy within the British Commonwealth, with Queen Elizabeth II as the ceremonial head of state. The parliament is unicameral (it has only 1 chamber) and the prime minister is a member of parliament. Mekere Morauta became prime minister in 1999 at the head of a coalition government. Papua New Guinea's parliamentary, political, and judicial institutions are similar to those in Australia and Great Britain.
The cultural and regional diversity of Papua New Guinea's population means that there are many political parties. The main ones are the Black Action Party, Bougainville Unity Alliance, Christian Democratic Party, Hausman Party, League for National Advancement, Liberal Party, Melanesian Alliance, Melanesian Labour Party, Milne Bay Party, Movement for Greater Autonomy, National Alliance, National Party, Papua New Guinea First Party, Christian Country Party, Papua New Guinea United Party, Peoples Action Party, and Peoples Democratic Movement. In the 1997 elections the People's Progress Party won the most votes, with just 15 percent, and led the coalition government. Because of the high number of parties, governments are composed of coalitions between several parties.
Papua New Guinea is divided into 19 provinces plus the national capital district. Legally, the national government retains most political power, and the provinces are therefore politically quite weak. In practice, however, the national government is often unable to exert its authority in provincial matters. The weakness of the national government in practice is demonstrated in the continuing difficulties on the island of Bougainville. In 1989, a rebel movement called the Bougainville Revolutionary Army (BRA) seized control of the Panguna mine on the island and demanded full independence for the province. The mine was closed and is not likely to reopen. Peace negotiations have been taking place over the past 3 years and are close to being resolved.
Papua New Guinea's government has in general encouraged foreign investment, especially in the mining industry. This is done by offering favorable tax rates for mining companies. The national government often takes a part interest in large mining projects by owning a portion of the stock in these projects, which provides revenue for the government. The national government also gathers revenue from personal taxes (on property and vehicles), a value-added tax (VAT), corporate income taxes , and mining taxes.