(yes, wildly improbable - so what?)
Summer of love reaches Wellington, and goes supercritical.
Nice reasonable moderate governments give way bit by bit. The Amsterdam coffee shop experiment is admired, copied. Leaders figure, reasonably enough 'it's NZ, we're in the middle of the bloody south pacific, what's the worst they can do - tie-dye the sheep?"
NZ climate and soil turn out to be mysteriously perfect for ganga, opium, coca, 'shrooms, and every other narcotic or hallucinogenic source known to mankind. Ever so often the random flock of sheep ends up wandering across some 'gardens' and coming out stoned silly. It occassionally makes the evening news, and is the source of good humored mockery.
Sure, some of the more conservative types are a bit annoyed, but even they are thinking "any moment now, those silly kids are going to grow up and go to the disco like they have everywhere else".
Never happens. In fact, NZ attracts communes, hippies, draft dodgers, and artist types from around the world - trickles of folks from the US, Canada, Australia, and Europe become streams. In the other direction, folks of a more martial, conservative, religious bent gradually filter outward, taking jobs in the rest of the Commonwealth, and even the USA.
Like many social processes, once the ball gets rolling, it reinforces itself. One example is when Wellington declares itself an asylum city for refugees from "prohibitionism, sexism, militarism, draftism, racism, capitalism, industrialism, pollutionism, fascism, nazism, anti-gayism, imperialism, phallocentrism, christianism, classicism, and carnivorism." Communes start popping up on isolated pastures, confrontations arise, farmers eventually get sick of insufficient govt support and move elsewhere. More communes show up near by, the local town becomes the domain of lazier hipsters.
Tax revenues fall, symbolic, and not so symbolic regulations are passed. Many businesses pack up and leave, other's go bankrupt. New businesses, focused on trade, entertainment, and pharmacopeia spring up.
It's now the 1980's, Reagan, Thatcher, Kohl, and all the rest are in power, disgusted leftists, anarchists, and more radical independents move to the more hospitable, civilized, and reasonable environs of NZ.
The remaining farmers are blood and soil types, not going to leave the land that their forefathers forefathers tilled and all that.
By this point NZ is one of, if not the world's premiere hubs of narcotic and hallucinogenic drug production. Prohibitionist ("uptight") countries begin placing greater restrictions on trade and travel from "New Easyland". What little legitimate trade was left starts drying up. Desperate farmers, businessmen, and townies become increasingly confrontational with the 'hippies'.
What they don't realize, is that for some time now, the 'hippies' have been following a very successful 'long march through the institutions' strategy, intentionally, or (more likely) otherwise.
So now the stage is set, a hard core minority of traditionalist, resentful, farmers angry at the theiving hippies who stole their land and destroyed their livelihoods, another hardcore minority of radicals, paranoid that the flesh-eating, gun-toting, stick-in-the-mud, theocratic, capitalist pigs are going to crush their one remaining safe haven in a world of evil and despair. The remainder of the populace, bewildered, confused, and not a little distraught, just wants things settled so they can go back to living their lives. The government, now in the pocket of lobbyists acting on behalf of drug cartels, just wants to keeps business going and shipments moving. Outside nations, noting the lack of NZ armed forces, and the prominent role of NZ based gangs in local drug trade, are looking for excuses to act.
All it will take is one spark.
The fall of the berlin wall, welcomed as a sign of hope and freedom in the rest of the world, is greated by large portions of NZ as a sign of the end times.
No longer is there an Eastern Bloc to 'guarantee' NZ neutrality, no longer will the more radical splinter groups have a handy source of intellectual and material support. Suddenly the traditionalist minority sees signs that history is turning in it's favor. Radicals on both sides stir up a population fed for nearly two generations on a steady diet of extremism, pettiness, crime, and contempt for the other side.
Someone, a 'real' kiwi, a 'new' kiwi, a drug merchant, or some prohibitionist agent, (apocryphal evidence points to a 'Thande' from the 'Spaced Bats Faction') stumbles into the wrong warehouse in Wellington. Gunshots are heard, explosive materials (never determined if actual bomb making materials, fertilizer, or drug lab) detonate. Every faction, every kiwi, old and new, is convinced that "those idiots, those evil buggers, they've gone too far this time - that's it!"
Bombings, assassinations, protests, blockades, arson, the whole slew erupts. Drug gangs and cartels take the advantage of the chaos to settle scores and expand territory, political factions assault their enemies and weed out the 'disloyal', farmers bulldoze communes, communes burn farms and cut fences, things are getting rapidly out of hand.
At some point, on the North island, one commune releases it's doomsday weapon against the ranchers - a highly contagious, highly lethal, sheep borne virus, deadly to the animals themselves, that can also be spread by prolonged or intense contact (such as a rancher, shearer, or slaughterhouse).
Pretty soon local embassies are reporting back that various foreign nationals (many of whom were actually involved in the drug trade) have been kidnapped, shot, or otherwise assaulted.
France, Australia, America, Canada, England and other nations send detachements to protect and or evacuate their nationals. Not so publicly, they also send in teams to wind up senior management of various shady enterprises who had taken advantage of NZ's ask no questions approach to pretty much everything. Amidst the confusion, it was perhaps predictable that at least a few of them would end up in firefights with each other.
Suitably chastened, and with most of their known nationals out of the country, most forces pull out. Australian, US, and UK forces retain small sectors in the north and south islands (a few docs, medical facilities, an airstrip and a barracks each) to support humanitarian interventions and eventual peacekeepers.
2008 dawns. NZ's sheep population is down to less than a million, wellington resembles Beruit with brighter graffiti, tracts of formerly productive land are returning to ther primeaval state, small towns dot the countryside - burnt, empty except for decaying corpses of sheep-plague victims.
Armed reclamation and reconstruction forces from the Australia, Canada, the UK, and the USA are working with international relief organizations to start rebuilding the shattered nation.
Here and there, heavily protected investigative teams track down rumors of the ultimate source of the troubles. Mysterious graffiti "Thande was here" and odd gang logos featuring a NZ flag with a giant, psychedelic bat rampant across the southern cross lead to various theories.
In a final, sad denouement, bat hunting becomes a right of passage for expatriate Kiwis, part of their celebrations and rememberance of the islands that were their home.