To revert, however, to the period 1895–1914, one may fairly claim that, if the basic forces making for returning prosperity are to be found in trends in the world economy and in techniques borrowed from the outside world, the legislation of the 1890s at least operated in the direction of strengthening those forces, rather than of weakening them. Thus the introduction of a graduated land tax in 1892 has been considered by some historians a powerful influence in breaking up the larger estates and facilitating that closer settlement which was characteristic both of the North Island dairy farm and of the mixed farming of the coastal plains of the South Island. Pember Reeves it is true, gave his opinion that “nothing startling is being done by the land-tax”, and certainly the gradation was exceedingly gentle, yet there was a very substantial reduction in the 20 years before the First World War in the total area of the largest freehold estates, and it is probable that the graduated tax was at least a subsidiary cause of this. It is well known, however, that much land had been locked up in big estates during the long depression, which neither its owners nor its mortgagees could sell save at a grave loss, and it is thus likely that the rapid sale and subdivision of many large freehold estates after about the mid-1890s represented in part the belated accomplishment of intentions which had been thwarted during the long years of depressed prices and land values.
A further measure dating from this period provided for the compulsory purchase by the State of large estates, and their subdivision into small farms to be let on long leases. Probably greater importance should be attached to the Advances to Settlers Act of 1894, which cheapened credit for the smaller farmer and especially for the dairy farmer, for whom working capital is and always has been of crucial importance and who has, therefore, had an especial interest in credit facilities. Finally, a Department of Agriculture was established in 1892 and was soon doing excellent work in the field of agricultural extension, which was also of great benefit, especially to the dairy farmers learning new techniques.
Land measures were by no means the only important aspect of the economic legislation of the Liberal Government. Pember Reeves, the intellectual of the Liberal Ministry, was primarily responsible for a series of Acts prescribing conditions and hours of work, the background to which was the allegations of sweated labour which had been made during the later years of the long depression. As a result of these measures, New Zealand, from being one of the most backward of nations regarding her industrial code, became perhaps the most progressive. Of greater interest, however, was the Industrial Conciliation and Arbitration Act of 1894, which initiated the distinctive New Zealand system of dealing with industrial disputes and helped to earn for New Zealand the reputation of being “the country without strikes”. Since that time, New Zealand has undoubtedly enjoyed a good record as far as losses of working time through disputes are concerned, though whether this is entirely the result of the I.C.A. system might perhaps be disputed.
One important consequence of these developments in farming was to accentuate the slow change in the balance of population, as between the North and South Islands. In the early years of the colony's history, the North Island, with its more thriving trading settlements and with its whaling, timber, and flax resources, had a large majority of the European population. It was the gold rushes of the early 1860s which first put the South Island ahead; and by about 1867 the “Main” Island, as its champions like to call it, had reached its apogee, relatively speaking, with over 63 per cent of the total population. Then, as the gold rushes died down and the end of the Maori troubles permitted development of the North Island, the South's proportion gradually declined. It was between the censuses of 1881 and 1886 that the North Island first registered a bigger absolute gain of population than did the South; but in 1891 the latter still had 55 per cent of the population of about 625,000. In the next 20 years the North Island, with a climate and terrain better suited to dairying, a relatively intensive form of farming, went ahead rapidly; and by 1911 the South Island had only 44 per cent of the total population of upwards of 1 million. (Inclusion of the Maori population – all the above figures are exclusive of Maoris – would increase the North Island percentage in all cases.) Since 1911 the North Island has further increased its lead, though until recent years at a somewhat slower rate, and now (1961) accounts for over 71 per cent of the total population, including Maoris.
Another characteristic feature of the New Zealand economy which became more pronounced during the period just reviewed was the country's high degree of dependence on the British market – particularly as the major recipient of her exports. In the years before British annexation, and for a good many years afterwards, New South Wales was the most obvious trading partner; most of the timber, the agricultural produce, and the gold (on account of the Mint in Sydney) went there, and during the gold rushes (1861–65) Australia took 63 per cent of New Zealand's exports and supplied 54 per cent of her imports. From the later 1860s onwards, however, as wool grew and gold declined in relative importance, the position of the United Kingdom in New Zealand's trade became more marked, and in 1881–90 the mother country took 72 per cent and in 1911–14, 79 per cent of all exports. These figures are in fact somewhat spurious, in that substantial proportions of New Zealand's exports to Britain, particularly of wool, were re-exported, London acting merely as a convenient distributing centre. Nevertheless, the importance of the United Kingdom as a market for New Zealand produce, and particularly for her meat and dairy produce, has been a characteristic and, at times, disturbing feature of the country's trading pattern: between the 1890s, when pastoral products came to account for a very large majority of the country's exports, and the Second World War, the percentage of exports directed to the United Kingdom (ignoring the qualification just mentioned) rarely fell outside the range 75 to 85 per cent.