How Norfolk Island has gone bust

The fomer penal colony is in dire straits, and Australia has pumped nearly $40 million into its economy, reveals Natalie O'Brien.

The picturesque Norfolk Island, which has been proudly self governing for more than three decades, has run out of money and been declared officially insolvent.

An investigation by The Sun-Herald reveals that the government of the former penal colony-turned-tourist playground has been unable to pay its bills for almost a year.

A collapse in the tourism industry is sending financial shockwaves across the island. Many homes, hotels and businesses are up for sale, islanders who are not eligible for Australian unemployment benefits are struggling to make ends meet and the island airline, Norfolk Air, has been grounded.

A new report by the federal Department of Regional Australia shows that the federal government has pumped more than $37 million in emergency funding into the island economy to keep it afloat, more than $20,000 for each of the 1800 permanent residents.

But the bailout is not enough, and islanders have been warned that the only way to save their island is through the sale of government-owned enterprises coupled with a raft of reforms including joining the Australian tax system and paying income and land tax.

The island's most famous resident, the author Colleen McCullough, said islanders felt the federal government was out to "bust" Norfolk Island's autonomy.

"The Canberra desk shames me in its horrible and cold-blooded attitude to Norfolk Island, " Ms McCullough told The Sun-Herald. "They give away millions and millions but when it comes to Norfolk Island - it's blood."

Ms McCullough, who has lived on the island for 32 years, said the average person would not be able to afford to remain if they were forced to pay land tax. "Local people are land rich and cash poor," she said. "We don't pay income tax but we pay a lot of other bills and our freight costs are astronomical."

The author would like to see the island made a protectorate of Australia but remain autonomous and receive assistance in developing another industry, such as off-shore banking. "It would give us another income," she said.

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Settled just six weeks after Sydney, the island is famous for its history as a penal settlement. Its historical precincts won World Heritage status in 2010.

The island is home to many of the Pitcairn Island descendants of the 1789 mutiny on the HMS Bounty, who were resettled in 1856. The Pitcairn Islanders have long had a strained relationship with Australia, labelling its interference with island business as "illegal and immoral". They fought hard to keep their independence after winning autonomy in 1979.

But the global financial crisis forced the island's economy into depression, and its government agreed that the federal government should take back some control in exchange for financial support.

A five-year reform agreement was signed last year by the Minister for Regional Australia, Simon Crean, and the Norfolk Island Chief Minister, David Buffett.

Mr Buffet said the reforms were "a huge and extremely difficult step for the island community".

He said the islanders were proud people who wanted to work and to make their own way and did not want to take handouts.

"There are some difficult pills to swallow but we have survived in the past 170 years and we will continue to do so," Mr Buffett said.

But the financial situation is taking a big toll on the islanders: a drop in employment, health and quality of life has been reported.

The federal government's Norfolk Island Economic Development Report, which was quietly released this month, provides a snapshot of life on the island. It shows that the cost of living is up, the number of bad debts incurred by islanders has ballooned and the number of default summons has almost tripled in the past four years. There have been a number of bank foreclosures on family homes and more could eventuate.

The report said the most significant factors limiting development were the "dominant role of the government", protectionist legislation and a lack of investment in infrastructure.

It said that without the federal government bailout, the island's government would have run out of money to pay suppliers in June.

A review of the island's public service is scathing and warned that it does not have the capacity to deliver basic services and there was "little evidence of a clear vision or sustainable long-term plan".

"The most significant issue uncovered is that most of the issues identified in this review have been identified in earlier reviews, sometimes multiple times and some as many as 14 years ago," the report said.

A spokesman for Mr Crean's department said the development report was "advice to the Australian government and is not binding on either of the governments" and would be used to discuss with the island's community the "pathway to economic diversification".

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