The Kingdom of Tonga is a Small Island Developing State (SIDS) in the South Pacific with a population of 100,745. Tonga is a constitutional monarchy and has never been colonised. Tonga's local economy relies on subsistence farming and fishing. Remittances continue to be the primary source of income, courtesy of relatives 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 revenues to fund development projects. Economic turmoil and mismanagement during the late 1990s forced the government to seek technical and financial assistance from the Asian Development Bank to undertake a comprehensive Economic and Public Sector Reform (EPSR) programme. The weak economic situation presented overwhelming financial challenges for the government. In February 2005, I was a member of a team of technical advisors contracted to advise and support the Tongan Government. Our main goal was to support the Minister of Finance and staff from the Revenue Services Department with the revenue reform programme. This programme was part of the EPSR strategy developed by donor agencies in consultation with the government. This thesis evaluates the impact of the revenue reform on the vulnerable people and communities in Tonga.
I interviewed two participant cohort groups. Participant group one consisted of 51 people representing the vulnerable communities. Participants were selected using key informants from the rural villages of Tongatapu and residents of the outer Islands. Vulnerable communities in Tonga are not to be equated with rural villages and outer islands per se because there are vulnerable communities and households in Tonga’s urban areas too. In this study, rural communities were the primary focus of the field work exploring impacts of the EPSR programme, and especially the imposition of a consumption tax on fanau (families) and household wellbeing. Participant group two consisted of six people from the government and business sector who were the elite of Tongan society. The Kakala Research Methodology provided the framework for the research, and the Talanoa Research Method was used to conduct the semi-structured interviews in the homes of the first cohort and in the workplaces for the second cohort. The fieldwork was hampered by the arrival of cyclone Gita in February 2018 but, fortunately, the interviews were completed a day before the storm arrived. I included residents from the outer Islands who migrated to Tongatapu. The data was collected and analysed using thematic analysis to identify the key themes from the two participant cohort responses.
The main findings of the research identified the heavy burden of the consumption tax (CT) on the purchasing power of participant group one (vulnerable participants) and its impact on nearly every financial transaction they made. Participant group ones' main financial priorities were for 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, as well as importing goods. Excise tax duties 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, participant cohort group two have a significant level of purchasing capacity but were able to cope with the revenue reform impacts. Cohort group two had a much higher and more regular source of cash income so they were able to adjust more effectively to the shocks generated by CT and the revenue reform programme. Overall, the findings identified the inequities of the revenue reform, especially from CT, for the vulnerable people and communities compared to the elite sector of society. The government and donor agencies need better ameliorating policies to reduce the burden of tax on those who are vulnerable to the impact of the revenue reform. The learning from Tonga's revenue reform is for better research on the impact of future development policies on the most vulnerable, and economic arguments alone should not be the primary rationale for policy change.