Keywords

1 Introduction

This chapter is about Tonga’s post-colonial experience and how it adopted a Western model to address its failing economy, weak public sector, and inefficient tax system. The effectiveness of the Economic and Public Sector Reform (EPSR) programme, which was implemented to address Tonga’s economic challenges, is reviewed. This chapter provides insights on a particular element of the programme, that is, the post-colonial impact of tax reform on vulnerable people in the Kingdom of Tonga and how differently such reform could be designed and given effect when Indigenous Tongan values are applied at the outset. In this chapter, tax reform and revenue reform have the same meaning and are used interchangeably. The chapter is based on the author’s research conducted in Tonga and the introduction and effect of a Consumption Tax (CT). Two participant groups were interviewed for the research. Participant group one consisted of 51 people representing vulnerable communities. Participant group two consisted of six people from the government and business sector who were from the elite of Tongan society. The Kakala research methodology provided the framework for the research, while the Talanoa research method was used to conduct semi-structured interviews in the homes of the first group and in the workplaces of the second group.

The research found that the burden of CT fell heavily on the purchasing power of participant group one (vulnerable people), impacting nearly every financial transaction they made. Participant group one’s financial priorities were kavenga fakalotu (obligations to the church), kavenga fakafāmili (obligations to the family), and kavenga fakafonua (obligations to cultural events for the village, nobility, and royalty). Inequalities in the revenue reform were found, especially from CT for vulnerable people compared to the elite of society. The research concluded that government and donor agencies need ameliorating policies that reduce the burden of tax on vulnerable groups more susceptible to the impact of revenue reform. The EPSR failed to consider Tongan cultural values because such values were outside its Western view of policy. The Tongan government and donors need to use a Tongan rather Western lens to develop solutions for Tonga if they are to be effective, appropriate, and enduring.

2 Kingdom of Tonga and Its Colonial Experience

The Kingdom of Tonga is a Small Island Developing State (SIDS) in the South Pacific with a population of 100,745 (Tonga Department of Statistics 2022) and 126,540 abroad, predominantly in Australia, New Zealand, and the United States (United Nations ESCAP 2021). Tonga is a constitutional monarchy, and unlike neighbouring Pacific nations, it has never been directly colonised. Tonga was, however, heavily influenced by colonial missionaries such as Reverend James Egan Moulton of the Methodist church and Reverend Shirley Waldemar Baker. Reverend Baker played a major role in framing Tonga’s first legal codes in 1862 before becoming Premier in 1880 (Rutherford 1969). Tongan law is based on English common law (Kautoke 2009). Reverend Moulton’s teachings were highly influential in the Free Wesleyan Church, which is the largest denomination in Tonga (Claughton 1974). Tonga entered into a protectorate agreement with the British Empire in 1900. This agreement allowed Tonga autonomy while foreign affairs were controlled by the British Foreign Office. Tonga became a fully independent and sovereign nation within the British Commonwealth on 4 June 1970 (Trumbull 1970).

Tongan society was classified as the most hierarchical of the Polynesian societies (Volkel 2010). This hierarchy continues to influence many Tongan cultural practices. At the same time, Tonga is one of fourteen Pacific island states that have successfully adapted the Westminster parliamentary system (Herr 2014). This adaptation to British imperial mores is best illustrated by King George Tupou 1’s enactment of the Constitution of Tonga as supreme law in 1875.

Every Tongan person knows his or her status in society and in different gatherings (James 1992). A Tongan is expected to understand their position as a member of a large family, related commoners (kainga), tribe (ha’a), village, and as a commoner in Tongan society. Each person accepts their role as a commoner and proudly takes their place in the societal hierarchy with dignity and humility. This knowledge is ingrained in each person by their parents, grandparents, and community elders. Tonga is fortunate that it still maintains a strong culture and has managed to successfully integrate and weave the Christian faith into its way of life. The Christian faith and Tongan culture work in harmony, which strengthens the fabric of modern Tongan society.

The cultural event that captures the distinctive hierarchical structure of Tongan society is the positional arrangement of the taumafa kava circle (Tongan kava ceremony for a royal purpose such as the Coronation (ABC News 2015)). The taumafa kava circle places each noble and talking chief (matapule) according to hierarchy and role in the service of the King. According to Professor Futa Helu, the sacred ritual of the taumafa kava is the best representation of the Tongan worldview (Helu 1993). Taumafa kava brings together all hierarchies of Tongan society, the kainga (related commoners) or ha’a (tribe), the nobility, and the King. Tongan society is based on communal good rather than individual good. The priorities of a Tongan are to the nation embodied by the King (fonua), family, tribe (kainga), and church (siasi). An individual’s priorities are outranked by these obligations to Tongan society (Fakahau 2021). This holistic view of Tongan society is reflected in Pacific research methodologies where communal interaction generates knowledge. The Kakala research methodology, Tivaevae model, and Vanua framework are examples that make Pacific methodologies unique.

2.1 Managing the Economy in the Post-colony

Tonga’s local economy relies on subsistence farming and fishing. Remittances continue to be the primary source of family income, courtesy of relatives living abroad. More recently, the Recognised Seasonal Employer (RSE) scheme in New Zealand and Seasonal Work Programme (SWP) in Australia have become another important income source, especially for vulnerable families. Foreign aid is another key income source that supplements tax revenue to fund development projects.

Foreign aid is based on Western models of development that have deep colonial roots embedded in the tools, outputs, and outcomes of this activity and its approach. An example is how international agencies and their technical advisors use Western models to decide how to achieve desired outcomes for SIDS. Tonga encountered this situation in the late 1990s and early 2000s. The Tongan government sought advice from international donor agencies to help it address economic hardship, a non-performing public service, and an inefficient tax system.

In the latter half of the 1990s, the dominant agricultural cash crop was squash, but the industry was failing due to poor international prices (Naidu 2010). The declining squash industry, a shrinking domestic economy, a lack of accountability, and mismanagement forced the government to seek technical and financial assistance from the Asian Development Bank (ADB) to undertake a comprehensive Economic and Public Sector Reform (EPSR) programme (ADB 1999; International Monetary Fund [IMF] 2001). The economic situation presented overwhelming financial challenges as the government sought a sustainable economic solution.

In the 1980s, lack of accountability, corruption, and fiscal crises in some developing nations led to the development of the Westernised New Public Management (NPM) model to guide public sector reform (Hood and Jackson 1992; Minogue 1998). The NPM was used as a foundation for reform programmes designed for developing nations. The NPM provided the framework for EPSR in Tonga, which produced a revenue reform policy (IMF 2001). The EPSR promoted broader changes in the political economy, enhancing revenue generation, advocating for privatisation, and reforming the public service. One of the critical components of the EPSR programme was tax reform (‘Utoikamanu 2007).

The tax system impacts all citizens, with tax used to fund the public sector, which is the largest employer in the Kingdom. A reform programme of this magnitude must be fully communicated to the public and stakeholders such as business owners, taxpayers, and public servants. From the outset, the EPSR was controversial, challenged by internal and external critics. Oxfam was highly critical of the reform because it did not take into consideration the likely impact on the poor as well as cultural values integral to the way Tongan society functions (Oxfam 2005). Moreover, public consultation was limited, especially among vulnerable communities in rural areas and the poorest sector of society (Ministry of Finance 2005; World Trade Organization [WTO] 2005).

To be effective and accepted as legitimate, the human impact of the public sector reform must be understood from a Tongan perspective due to the severe repercussions on the families of public servants. Age and experience are held in high regard in Tongan society, especially to uphold the four golden threads (faa’i kavei koula) that define Tongan cultural values: faka’apa’apa (respect); feveitokai’aki (reciprocity); mateaki’ime’a (dedication); and tauhi vaha’a (maintaining relationships). The faa’i kavei koula values did not feature in the planning of the reforms because their Western framework failed to realise the critical role of these cultural values. This oversight inevitably caused discontent within the public service and, eventually, strike action in 2005 (Langa’oi 2009). Similarly, the revenue reform failed to consider the consequences for farmers, and how this programme would impact the poorest sector of society and their way of life, prompting farmers to protest by driving their tractors onto the steps of Parliament (Tonga Government Says Exemptions 2005). The Minister for Trade in mid-2005 and future Prime Minister, Dr. Feleti Sevele, asserted that the tractor convoy march was politically motivated as it was supported by the democratic reform movement. Thus, it did not change the government’s position on implementing revenue reforms (Tonga Government Says Exemptions 2005).

The proposed reforms had merit because of the economic problems in Tonga but they had to be carefully managed and procured so that the Tongan cultural values were front and centre of the cultural based talanoa (discussions). The talanoa enabled stakeholders to freely share their perspectives on sensitive topics. This balancing act of upholding our cultural values while modernising government infrastructure will continue to feature in how Tonga manages in the post-colony in order for major policies to be successfully implemented.

2.2 Rejection of Reform

The EPSR was in three parts: first, public sector reform; second, promoting private sector growth; and third, tax reform (Ministry of Finance 2001). In 2005, farmers revolted using the tractor convoy to rail against tax reform. In 2006, public servants and the community revolted against public sector reform through the civil servants’ strike (Langa’oi 2009). Public servants perceived the public sector reform as creating inequality between the rich and poor using a Western framework that ignored the value of people at all levels of the public service. Opposition to reform had to do with the government’s and donors’ failure to consider the cultural values that bind people together. The rationale for the EPSR was clear to the government and donor agencies but the impact was likely to be in conflict with Tongan values that are important for communal wellbeing in what Gershiere (2000) refers to as kinship societies.

There are parallels with the impact of Rogernomics on Māori and Pacific peoples in New Zealand from the 1980s and early 1990s. The Rogernomic policies were based on a persuasive economic rationale but nowhere near enough concern for the collateral damage sustained by already vulnerable groups who suffered intergenerational unemployment, homelessness, mental health, and incarceration. Sadly, a similar degree of oversight by government and donors led to a series of events that continued to hamper human development and political reform in Tonga. The public servants’ strike in 2005 was only the beginning of what was to come.

Ironically, the EPSR was implemented to provide economic stability, but it unintentionally played a part in the deadly civil unrest of 16 November 2006 (Langa’oi 2009). Soon after, the government requested a US$100 million reconstruction loan from China, through the Export–Import Bank of China, to rebuild the Nuku’alofa central business district destroyed by fire during the unrest. The loan has since boosted public debt to 47% of GDP (Ministry of Finance and National Planning 2018).

2.3 Tonga’s Tax System

Tonga’s pre-reform tax system was nearing collapse due to inefficiencies, weak administration, and outdated collection methods (Murray et al. 2014). Tonga’s individual income tax rate was lowered to 10% while corporate tax rates increased from 20 to 25% in the late 1980s, and by the beginning of the new millennium, the government had implemented significant tax exemptions to generate business growth (Ahlburg 1991). The exemptions required a large bureaucratic infrastructure to determine who qualified for them, and who did not. This led to an inequitable tax system that was struggling to implement tax exemptions (IMF 2001; Murray et al. 2014).

Some of the difficulties in Tonga’s taxation system were weakness in its institutions, a lack of compliance and monitoring capability, and inadequate resources to maintain an efficient regime (Ministry of Finance 2001). This was further exacerbated by political instability which hampered efforts to change taxpayer culture. It would take time for business and individual taxpayers in Tonga to adjust to a new taxation system that relied on voluntary compliance. It was thought, however, that stronger tax monitoring and administration would ensure effective compliance (IMF 2001).

In 2002, a diagnostic report by the Pacific Financial Technical Assistance Centre (PFTAC) highlighted serious concerns that Tonga’s tax system was on the verge of collapse due to numerous problems and administrative weaknesses (Cotton 2008; PFTAC 2002). If assessed against PFTAC’s Revenue Administration Baseline Assessment Tool, Tonga would have ranked as ‘below baseline’ on every metric indicator (Murray et al. 2014).

In my research, I asked participants about their knowledge of Tonga’s taxation system, and whether they had some understanding of how it works. Sixteen people responded to the questions about taxation, especially CT and customs duty. Most participants understood CT charges only at the border while two participants (Participants 2 and 46) knew that CT is charged on all 166 goods and services. Most respondents understood customs duty and the impact on their imported goods such as Participant 12, who was frustrated with the charges.

Participant (12): ‘Oku ‘omai ‘eku ki’i puha mei muli ka ko e palopalema ko e ta’epau ‘a e totongi tute he ‘oku fai pe ia ki he fakamahu’inga ‘a e ‘Ofisa kasitomu. ‘Oku fakatupu loto mamahi eni tautautefito kapau ko e puha 4x4 ‘oku fa’o mai ai e vala moe me’akai ma ‘a e fanau. ‘Oku fa’a a’u e tute ia ki he TOP$500 pea ‘oku hala eni he ‘oku ‘ikai ke ma’a e founga fakamahu’inga koloa.

Interpretation: I received a box of goods from overseas, but the main problem is the uncertainty around customs duty charges. This is because the charges are dependent on the Customs Officers and how they estimate the value of the goods. This is disheartening, especially when the goods come in a 4x4 box with food and clothes for my children. The duty can reach TOP$500, which is unfair because the valuation process is not transparent.

Wealthier participants had different views on the government’s tax policy (Participant GBA, GBB, GBD, and GBF). GBD believed that the previous government of Prime Minister Feleti Sevele made changes to tax policy that were counter-productive to how Treasury develops fiscal policy to achieve the government’s economic outcomes. The changes included shifting the tax policy function out of Treasury to the Ministry of Revenue and Customs, which was the operational arm of the tax system. Treasury no longer set policy targets.

According to participant GBD, this is unhelpful to Treasury’s role in setting economic growth targets. Treasury uses fiscal and monetary policy to give effect to the government’s economic policy. However, the Ministry of Revenue and Customs is now the tax policy maker and tries to use that function to influence revenue collection without full consideration of the risks from the basis of a revenue shortfall or failure to pay for public services.

Participant (GBD): ‘Ohovale pe mautolu ia tu’u mai e previous CEO e Potungaue Revenue moe Customs mo ‘enau Minister ke nau holoki e CT mei he 15 ki he 12.5% ke teke ‘ekonomika. Nau advise ke tuku na’a holo e GDP moe domestic revenue. ‘Oku lolotonga surplus e patiseti. Ko e haa e tu’unga oku tau ‘i ai in terms of outputs. Nau warn the ministers he ku na fakakaukau ke hiki e spending e pule’anga kae reduce e CT at the same time. CT is our primary revenue earner.

Interpretation: We were surprised when the previous CEO of the Ministry of Revenue and Customs and their Minister visited to inform us about their plan to reduce CT to generate economic growth. I advised against this because of the risk of falling GDP and domestic revenue. The budget is currently in surplus. What is our position in terms of outputs? I warned the Ministers because they were planning to increase government expenditure while reducing CT at the same time. CT is our primary revenue earner.

2.4 Consumption Tax

Value-added tax (VAT) is an indirect tax known as goods and services tax (GST) in New Zealand and in other countries. In Tonga, it is called consumption tax (CT). The ‘value added’ is the value that a producer adds to raw materials or purchases before selling a product. The VAT is the tax levied on the final good or service (Tait 1988).

Germany and France were the first countries to adopt VAT during World War One (Helgason 2017) and more than 100 years later, over 130 countries use VAT where it commonly raises 20% or more of all tax revenue (Keen and Lockwood 2010). The VAT system is a broad-based tax that does not differentiate between rich and poor. It is very efficient in collecting taxes, and the mechanisms used for Tonga were based on New Zealand’s GST scheme introduced under the Labour Government of 1984–1990 (Dickson 2007). The rationale for the New Zealand tax reform was to raise taxation revenue in a way that is more efficient, fairer, and simpler (Russell and Baucher 2017). The same approach was used in Tonga’s revenue reform with the establishment of CT, especially given the technical advisors had previous experience with implementing GST in New Zealand. CT operates in a similar legal framework to New Zealand’s GST, with few exemptions and preferences.

The consensus on tax policy in developing countries is that the poor should not be made poorer and to avoid regressive taxes in reform measures (Bird and Miller 1989). Unfortunately, literature has shown that the poor are perceived to pay a larger proportion of their income in tax compared to the rich under a regressive tax system (Keen and Lockwood 2010). Lambert (1993) addressed the impacts of the reform in terms of both direct and indirect taxes. On the one hand, direct tax reform affects people’s disposable incomes, and they can adjust their incomes based on impending reform. Indirect taxes such as CT, on the other hand, have an immediate effect on the relative prices of taxed and untaxed goods, making it more difficult to increase people’s welfare (Lambert 1993).

3 Methodology

The research used a qualitative approach, drawing on in-depth face-to-face semi-structured interviews from participants in rural areas, outer islands, and hardship-stricken communities in Tonga. Participants from the government and business sectors were also interviewed. The Kakala research method (KRM) can capture Tongan cultural dynamics and rich data from within a Tongan context. This is the reason for selecting KRM for this study.

The KRM is used to frame the research and provide structure from a Tongan lens. The model conceptualises the garland-making process by Tongan women and uses six stages of teu, toli, tui, luva, malie, and mafana to create the Tongan garland or kakala (Johansson-Fua 2014). Each stage represents a process in the research method and together they form the KRM.

The KRM provides a reliable infrastructure for this study as it enables the use of Tongan processes in an academic framework (Vatuvei 2017). Using the model reflects the growing support for Pacific epistemologies to explore Pacific thought and philosophy. Thaman (1997) explained that kakala is fused into Tongan culture, which is ranked just as people are. When the flowers are strung or woven together into garlands, the final product is ranked according to patterns and elaborate etiquette standards. In the KRM, the conceptualisation of the garland-making process reflects how Tongan people see the method, as an intangible but vital part of their social reality. It is this social reality that gives the model credibility and legitimacy in the eyes of mainstream researchers (Johansson-Fua 2014).

KRM has been used to advise policy makers on tertiary education and how to support Pacific students to achieve better outcomes (Alkema 2014); highlight the needs of domestic violence victims (Sharma 2005); and inform sports groups about cultural diversity and inclusive organisations and processes (Stewart-Withers et al. 2017). In the same way that the KRM is being utilised for policy projects, I extended it to revenue reform in Tonga to identify its impact on vulnerable people.

The Talanoa research method (TRM) was used for communicating with the two cohort groups of 51 village participants and six members from the government and business sectors (Vailoeti 2006). Talanoa uses the Tongan way of communicating to describe how people converse either formally or informally. To be effective, talanoa requires the researcher and participant to have a good relationship. The researcher also needs to have an in-depth understanding of the origins of the participant or subject to provide accurate results. Interview data was transcribed and entered into the NVivo data analysis programme. Thematic analysis was used to identify the main themes from the data. Participants were identified using key informants and categories of vulnerability. University ethical guidelines controlled the research process and protected participants’ confidentiality.

The KRM and the TRM provided an approach that was culturally appropriate and able to comprehend participants’ thoughts, which provided insight into the impact of the reform. Stories participants shared have made it possible to identify how the reform impacted their wellbeing, culture, economic situation, social status, community, and other areas of their lives.

4 Impact on Vulnerable Indigenous Communities

The research found that the poor were comparatively worse off than government employees and business people as a result of CT, reducing the purchasing power of vulnerable people and influencing spending, consumption, and community obligations. The first group’s financial priorities were kavenga fakalotu (obligations to the church), kavenga fakafāmili (obligations to the family), and kavenga fakafonua (obligations to cultural events for the village, nobility, and royalty). CT impacted participants when they purchased food and other materials, paid utility bills and education fees, or imported goods. Excise tax and customs duty were other taxes that impacted participants, but to a lesser extent. Some activities were outside of the tax net such as roadside stalls, katoanga (bartering activities), and women’s enterprises selling koloa fakatonga (Tongan artefacts). In contrast, the second group had much higher and more regular sources of income and were better able to cope with the impact of the revenue reform.

The analysis of the 51 interviews from participant group one found that the burden of the reform was disproportionately carried by vulnerable participants. The most powerful tool in the revenue reform programme was CT. Yet, it also caused severe hardship for participants from rural villages and outer island communities who were subjected to CT’s regressive nature. Many vulnerable participants were exempt from income tax due to their low incomes, but their expenditure is heavily captured by CT when purchasing or importing goods.

The first group of 51 village participants in the research are characterised as respectful members of society, their communities, families, and church. Hearing their stories provided an insight into how they were valued and treated with dignity and love by their kainga. Through their stories, participants wanted to be perceived from a Tongan lens which is reflected in the four golden threads of Tongan values (faa’i kavei koula). Participants saw themselves not as vulnerable people, but as key members of their communities. Through a Western lens, it can be surmised that every participant with limited assets or financial resources is considered vulnerable or poor. While participants may not fully comprehend the tax reform, their stories show how the reform impacted their everyday decision-making and purchasing behaviour. Revenue reform added a new layer of tax compliance and cost of which participants were not aware. Through their stories, however, their decision-making clearly resulted in some paying taxes without their knowledge. An example is low-income participants paying CT every time they purchase food or services. Every transaction includes a tax component which participants were not aware of because CT is a regressive tax without any exemptions.

The second group comprised six high-income representatives from the government and business sectors. This group agreed that the revenue reform has modernised Tonga’s tax system and made tax collection more efficient. Business participants acknowledge the improvements, but consider some added compliance as unnecessary because it increases the cost of operating a business. The government participants considered that the revenue reform created a fairer and more efficient tax system for taxpayers.

5 Tonga’s Experience of Tax Reform

There are important learnings from Tonga’s experience with tax reform that are applicable in managing in the post-colony. Any national development policy or programme must be viewed through a Tongan lens. This is because the core cultural values that define the Tongan worldview, such as the faa’i kavei koula, form the foundation of this lens. As the revenue reform shows, a Western lens had negative repercussions for vulnerable communities in Tonga.

The research found inequality in revenue reform, especially among vulnerable communities resulting from the introduction of CT. Government and donor agencies need better policies to reduce the burden of tax on vulnerable people due to the impact of revenue reform. The learning from Tonga’s revenue reform is for quality research on the impact of development policies on vulnerable communities and avoiding economic arguments being the dominant rationale for policy change. The solutions to Tongan peoples’ issues can be found by engaging them directly and empowering them to co-design solutions. Western solutions should not be imposed upon Tongan people. Colonial-inspired solutions must be vigorously analysed to ensure the cultural values and beliefs of Tongan people are front and centre.

5.1 Burden of Reform

The analysis of the two participant groups’ responses found that wealthy citizens earn the highest incomes but are not paying their fair share of taxes. Some of their incomes are hidden through capital gains from properties and other commercial activities. Tongan business owners are able to set up overseas bank accounts to accept payments from foreign clients which evades the tax system. Tax evasion among some of the prominent business owners is a problem which prompted tax authorities to impose a point of sale system to monitor and accurately record business turnover. Tax rules enable business owners to reduce their tax payments using a range of methods available through the tax system. In contrast, poor villagers represented in participant group one have limited options because their incomes are under the personal income tax threshold of TOP$10,000. The poor have limited options and are exposed to the broad-based nature of CT in all their spending.

The analysis of the expenditure and revenue generation behaviour of the two groups indicated that the village participants actually pay a higher proportion of their income on CT and customs duties compared to the elite sector of Tongan society represented by group two. Wealthy citizens benefit from Tonga’s free public health system and most of their children are educated in the top state secondary school, Tonga High School. Village participants struggle just to make it to the public hospital as well as buy medication. All the children of participant group one were enrolled in church schools rather than Tonga High School.

The income inequality between rich and poor is quite prominent in Tonga and evident with only six participants of both groups earning more than the TOP$10,000 income tax threshold. Three earn their income from local salaries or wages. Two are RSE workers but this is not subject to the income tax threshold. One participant earns TOP$12,000 from his subsistence farming but is not formally employed. The threshold is designed to alleviate the financial burden on the poor and increase the tax collected from high-income earners who are taxed between 10 and 25% on incomes above the income tax threshold. Income tax is a direct tax, but the largest tax collected is the indirect tax of CT. There is no CT threshold for taxpayers and no differentiation between low- and high-income earners. All consumers pay the same indirect tax. The main difference is that low-income earners who are potentially vulnerable pay a higher proportion of their income in CT compared to high-income earners.

6 Reflecting on the Reform

On reflection, the entire reform programme should have been subject to Tongan values and cultural institutions, which would have informed the tax reform and the introduction of CT. Timing was important because the tax reform was significant on its own and its impact on vulnerable communities was a major point of contention during political discussions. The tax reform was rushed and should have considered the full impact on vulnerable communities. For example, concessions should have been made to protect the vulnerable from the impact of CT, especially on food. The overarching indirect tax coverage provided no respite for the poor who bore the full brunt of CT because they had limited choices to avoid this tax. Alternatively, some form of credit or welfare system should have been provided to ensure the regressive nature of CT was minimised for vulnerable communities. In post-colonial Tonga, ‘the smallholder farmers are by far, the most important element of agriculture development in Tonga, but there is little prior analysis of their needs and capabilities by planning bureaucracies in designing development projects’ (Fakava et al. 2001: 2). Social relationships of vulnerable communities are complex, with misunderstandings causing mismatches between development policy and community need.

7 Conclusion

As a former British protectorate, the Tongan government was heavily influenced by Western models and technical advisors. In the 1990s, Tonga’s economic situation was challenging from the perspective of the ADB and World Bank, so their advice was to implement a Western development model under the EPSR banner to stabilise domestic activities and generate economic growth. Revenue reform was a key component of the EPSR which was the focus of the research canvassed in this chapter. A declining squash industry, a failing domestic economy, mismanagement, and a lack of accountability were reasons for the revenue reform (ADB 1999; IMF 2001; Naidu 2010). As a key tool in the revenue reform, the indirect CT significantly impacted vulnerable people because of its regressive nature.

The government of Tonga acted on donor advice to adopt the EPSR and simultaneously introduced major tax and public sector reforms. Tonga’s tax revenue system was weak due to low compliance and a lack of administrative capacity. Significant modification was needed for the tax system to be effective and efficient. The revenue reform was implemented alongside public sector reform to improve the efficiency of service delivery. The chapter highlighted why government decision-makers and donor agencies need to be aware of the full implications of a programme or policy on vulnerable groups prior to its implementation.

Two participant groups were interviewed about their perspectives on tax reform. Group one was made up of 51 vulnerable community members and the second represented high-income earners in government and business sectors. Research was able to track the impact of new taxes, especially CT, on vulnerable participants’ daily lives (group one). The vulnerable were precisely those who had a change in their tax status as low-income earners or were not employed in the formal sector, so they are vulnerable to the impact of revenue reform based on their way of life. The participants’ way of life is community-centric and based on collectivism. The revenue reform impacts this collectivism, which the research identified through talanoa about participants’ purchasing patterns.

The EPSR reform model was found to be flawed because of its lack of cultural inclusion. Tongan values and culture were not prioritised and this was a major reason behind the backlash against the tax reform and other components of the EPSR. Tonga is a modern-Christian society with strong traditional and cultural values. Any wide-reaching reform programme must be mindful of these social anchors to avoid adverse effects. Donors and Western trained technical advisors had clearly misunderstood the Tongan psyche and how aware the common people are of the reforms and their consequences. The Western development model defers to cost and resource rather than looking at the problem first from a Tongan worldview, which is recommended for effective implementation of reform.