In a landslide victory, the third Labour government took control in 1972. Again it was to only last a single three-year term, largely due to the difficulties of having to deal with international events beyond its control. Most fundamental was the long-expected entry of Britain into the Common Market. Some other export markets had been found but New Zealand still felt betrayed. Later the same year oil prices quadrupled in a few months and the treasury found itself with mounting fuel bills and decreasing export receipts. The government borrowed heavily but couldn't avoid electoral defeat in 1975 by National's obstreperous and pugnacious Robert "Piggy" Muldoon , who denounced Labour's borrowing and then outdid them. In short order New Zealand had dreadful domestic and foreign debt, unemployment was the highest for decades, and the unthinkable was happening - the standard of living was falling. People began to leave in their thousands and the "brain drain" almost reached crisis point. Muldoon's solution was to " Think Big " a catch-all term for a number of capital-intensive petrochemical projects designed to utilize New Zealand's abundant natural gas to produce ammonia, urea fertilizer, methanol and synthetic petrol. Though undoubtedly self-aggrandizing it made little economic sense. Rather than use local technology and labour to convert New Zealand vehicles to run on compressed natural gas (a system already up and running), Muldoon chose to pay international corporations to design and build huge prefabricated processing plants which were then shipped to New Zealand for assembly, mostly around New Plymouth.

Factory outfalls often jeopardized traditional Maori shellfish beds, and where once iwi would have accepted this as inevitable, a new spirit of protest saw them win significant concessions. Throughout the mid-1970s Maori began to question the philosophy of pakeha life and looked to the Treaty of Waitangi to correct the grievances that were aired at occupations of traditional land at Bastion Point in Auckland , and Raglan, and through a petition delivered to parliament after a march across the North Island.

Maori also found expression in the formation of gangs - Black Power, the Mongrel Mob and the bike-oriented Highway 61 - along the lines graphically depicted in Lee Tamahori's film Once Were Warriors , which was originally written about south Auckland life in the 1970s. Fortified suburban homes still exist and such gangs continue to be influential among Maori youth, a position now being positively exploited to bring wayward Maori youth back into the fold.

Race relations were never Muldoon's strong suit and when large numbers of illegal Polynesian immigrants from south Pacific islands - particularly Tonga, Samoa and the Cook Islands - started arriving in Auckland he responded by instructing the police to conduct random street checks for "over-stayers", many of whom were deported. Muldoon opted for a completely hands-off approach when it came to sporting contacts with South Africa and in 1976 let the pig-headed rugby administrators send an All Black team over to play racially selected South African teams. African nations responded by boycotting the Montreal Olympics, putting New Zealand in the unusual position of being an international pariah. New Zealand signed the 1977 Gleneagles Agreement requiring it to "vigorously combat the evil of apartheid" and yet in 1981 the New Zealand Rugby Union courted a Springbok Tour , which sparked New Zealand's greatest civil disturbance since the labour riots of the 1920s.