In boom times, the main street in Burnt Pine, Norfolk Island's compact commercial centre, was known as the "Golden Mile". Duty-free shops catered to visitors' every whim, while restaurants and cafes vied for their custom. Tourists flocked to the island's convict-era buildings and Pitcairn heritage sites.

Now every other business on the Golden Mile is for sale, along with about 200 homes. Norfolk's situation is so dire that more than one-tenth of the 1500-strong population has left, mainly to look for jobs on the Australian mainland. Of those who remain, nearly 100 are dependent on charity food parcels to feed their families. Some locals have resorted to hunting wild chickens.

The Australian external territory ran out of cash in 2010, following a downturn in tourism. While the federal Government has provided funds to maintain the hospital and airport, the private sector - particularly shop, restaurant and motel owners, along with those they employed - is in desperate straits.

Self-governing since 1979, Norfolk is now keen to join the Australian tax and benefit system, which would give residents access to Medicare and welfare payments in exchange for paying income tax for the first time. However, Canberra is imposing strict conditions, and has scrapped a A$13 million ($15 million) project to extend a jetty, which would have enabled more cruise ships to visit.


Penny and Hubert Finney migrated to Norfolk in the 1970s, and set up the Italian Shop, importing Venetian glass jewellery and Guiseppe Armani figurines. Now in their 60s, they want to retire and return to Australia. But no one wants to buy their business, and if they closed it, they would face paying duty on about A$160,000 of unsold stock.

"We're over a barrel," said Penny. "We can't afford to stay open because business is so rotten, and we can't afford to close because we'd be charged for all the stock we brought in without paying duty."

Brian and Jeanette Purse, both 64, were also hoping to retire soon. They own seven holiday flats, the Callam Court Apartments, and until a few years ago made a good living. But the global financial crisis, strong Australian dollar and airline troubles - as well as competition from cheaper destinations - have almost halved tourist numbers over the past decade: from 40,000 to just over 22,000.

Now they are averaging only one or two bookings a month, and their financial plight is so grim the Commonwealth Bank is about to repossess their home. Norfolk - where two-thirds of the population are transplanted Australians and New Zealanders - has seen six bank foreclosures in the past couple of years, compared with just two over the previous two decades.

"We've sold everything," said Jeanette Purse. "Our shares, and our gold coins - Brian had a big coin collection. We've had to receive some Foodbank [parcels], and we will again in the future. I've killed wild chickens because I've got no meat in the house, and a friend killed some roosters out of our hen house, to feed our dog."

Brian, who suffers from heart problems and diabetes, can't afford to buy his expensive prescription drugs. Eve Semple, chairwoman of Norfolk's Social Welfare Advisory Committee, said she knew of islanders forgoing or rationing medication. Locals are also avoiding hospital visits, because of the cost. The hospital is owed A$300,000 in unpaid bills.

The site of two penal colonies notorious for their brutal regimes, Norfolk was once known as "Hell in the Pacific". After the second colony closed, Britain offered the island to the Pitcairn Islanders, who had outgrown their original home. Descendants of those who crossed the Pacific in 1856 now make up about one-third of the population.

Some blame the Norfolk Islanders - as the Pitcairn descendants call themselves - at least partly for the island's woes. The public service, which the islanders dominate, is widely said to be overstaffed, inefficient and rife with dishonest practices. Employees admit privately that petrol and building materials, including timber and cement, are routinely stolen from public stocks.

Mike King, a former politician, regards self-government as a failed experiment, with Norfolk run by "lay people, many of whom had never even balanced a household budget". He blames "poor-quality decisions and bad management" for the community's situation, calling the island "one of the most over-governed places in the world".

Some locals disagree, and a hardcore minority - including the Chief Minister, Lisle Snell - remains convinced that Norfolk could "go it alone", with income from fishing rights, offshore banking and foreign aid. Snell laments that "we've gone from being a virtually independent small state to almost mendicants".

While the federal Government will continue to top up the island's budget deficit, Australia's resident Administrator, Neil Pope, said the community would have to finance its capital projects. Australia has spent A$35 million propping up Norfolk since 2010. It remains to be seen whether Canberra will be prepared to meet the estimated A$80 million to A$100 million cost of integrating Norfolk into the tax and benefit system.