Influence of interest rates in economy

Hi! I am out of field of finance, but I would like to make my self clear about a quote from a text regarding finances:

" The budget for the year had hit hard the Mutual Funds when the rate of taxation on dividends paid by debt-orientated Funds was raised from 11% to 22%. The dividends payable from Equity schemes were exempt. As a result the debt-oriented Funds were affected adversely and the result was a shift from debt schemes to equity schemes. Realizing the mistake.... bla bla bla"

So can anyone tell me what was the mistake ? and how raising the interest rate can be negative to the economy ?