Norfolk Island's chief minister says the Australian territory's economy would have floundered without help from Canberra.
The two sides have signed a memorandum of understanding, bringing the island into the Australian taxation and social welfare systems in return for a financial bail-out of almost four million US dollars.
David Buffett says like other economies, Norfolk Island's has suffered the impacts of the global recession.
"The economic outlook would have been bleak and the Norfolk Island government considered obviously that that was an area where Norfolk Island should not tread and so we needed to take remedial arrangements before we were pressed into that situation."
David Buffett says the details of the new taxation arrangement are yet to be worked out.