Bankrupt former penal colony Norfolk Island battles to keep its autonomy

Norfolk Island, a small volcanic outcrop in the Pacific Ocean, has always jealously guarded its way of life. There are no traffic lights on the island, cows have right of way and the local phone book lists the 2,000 or so residents by their nicknames.

But the former British penal colony, now an external territory of Australia, is facing a threat to its cherished independence. Canberra wants a bigger role in the affairs of the largely self-governing island, and the island's population – many of them descendants of the Bounty mutineers – are battling to resist the changes. To add to their woes, the territory is also going broke.

For the past 30 years Norfolk, a speck of land 900 miles east of Brisbane, has enjoyed substantial autonomy. A chief minister heads a nine-member legislative assembly, with four ministers determining policy on almost everything bar defence and foreign affairs.

Recently though, the Australian government has signalled its determination to overhaul the island's system of governance. A bill now before federal parliament would give Canberra powers to appoint and dismiss ministers and introduce its own legislation into the assembly.

Locals – who speak their own language, a blend of 18th-century English and Tahitian – have accused the government of trying to reimpose colonial-style controls.

But according to the island's opposition leader, Mike King, Norfolk is fast running out of money. As of last June, its reserves were down to A$220,000 (£136,261).

In a letter to Canberra, Mr King wrote: "The conclusion is inescapable: there is now no liquidity remaining whatsoever and government is surviving on a day-to-day basis, by deferring creditors and utilising forward-travel booking funds."

Eleven shops have closed in Burnt Pine, the island's compact commercial centre, while other businesses have laid off staff.

"There is widespread financial hardship accelerating out of control," wrote Mr King, whose letter was quoted yesterday in The Australian newspaper.

Popular with Australians and New Zealanders, who are drawn by the scenic cliffs and beaches and the imposing convict-era stone buildings, Norfolk is heavily reliant on tourism. But visitor numbers have slumped in recent times and other key sources of income, such as Norfolk Air, the the island's airline, are losing millions of dollars a year.

A bailout is unlikely to happen unless the island agrees to Canberra's reforms. And that is anathema to many residents, who fear Norfolk's status will be reduced to that of a shire council.

Patricia Magri, the school librarian, recalls a time when schoolchildren who spoke the Norfolk patois – a mixture of 18th-century English, Tahitian and Low German – were "told off for speaking gibberish" by their Australian teachers. The Chief Minister, David Buffett, says of the parliamentary bill: "It is almost back to the colonial system."

In the early 19th century, Norfolk – a brutal site of incarceration for the very worst convicts – was known as "hell in the Pacific". The governor of New South Wales at the time, Sir Thomas Brisbane, said: "The felon who is sent there is forever excluded from all hope of return."

In 1856, Norfolk was settled by descendants of the Bounty mutineers and their Tahitian wives, who had outgrown their original haven, Pitcairn Island. Nowadays the Pitcairners make up about half of the population; mutineers' surnames such as Christian and Adams remain common.

A place of softly rolling hills and farmland, sprinkled with the statuesque pines that give the island its name, Norfolk has many quirks.

Seatbelts are optional, the speed limit is 30mph and there are no numbered houses. Television arrived only in 1987, and mobile phones in 2006.

As recently as the 1970s, the island had only dirt roads and the electricity supply was erratic.

The image of a tranquil Pacific paradise was shattered in 2002, when the body of Janelle Paton, a young Australian woman, was found dumped at a picnic spot – police recorded more than 60 different injuries on her body.

It was the first murder on Norfolk Island since convict times, 150 years earlier. A New Zealander, Glenn McNeill, was convicted of her murder in 2007 and sentenced to 24 years in prison. He is serving his sentence in a Sydney jail.