Since the mid-1980s, neoliberal policies had made transformational impacts on the community and voluntary sector. Larner and Craig (2005)  divided the neoliberal period in Aotearoa New Zealand into three phases: ‘the withdrawal of the state from economic production, the extension of marketization and the introduction of neo-conservative social policy and the introduction of a state-driven partnering ethos’.

Started with the election of the Labour Government in 1984, New Zealand adopted the market-driven policies and the rolling back of the welfare state trying to give voice to the public. That began to change in the early 1990s when community initiatives and organizations began to rely on government funding, which was later withdrawn. This model for the communities to compete for the fund has significantly affected the community and the voluntary sectors. Since the interests of the local communities differ from the interests of the government, the renewal plan of the community is severely restricted due to the community’s urgent need for fund. This bid for fund mechanism has generated a new group of professional organizations that adopted a neo-managerist ethos to attract service contracts, and new organizations developed specifically to capitalize on this new market. This new phenomenon has increased the compliance cost for competing fund significantly, which result in resistance and dissatisfaction from the community and voluntary sector.

The government's adoption of neoliberalism has led to a hostile policy environment that has left community development isolated and financially unsupported. In the meantime, community development has lost its financial and political appeal. Some of the central government's support for community development has been reintroduced in recent years. Inspiring Communities Trust, an independent non-profit community and voluntary organization, was set up in 2008 to promote a single approach to community-led development, leading to a holistic approach. However, similar issues of marginalization happened again as the competitive fund model before. For deprived communities, it is too challenging for them to complete a 10-year plan with their limited knowledge and experience. Additionally, the funding pilot might set up their standard too explicitly, which left little space for the community to be self-determining. Therefore, the gap between large and small communities, as well as voluntary organizations have been further widened according to their condition of whether receiving the government signed contracts for social services. The main problem with the New Zealand government's cooperative strategy was that it placed too much faith in market forces and ignored the apparent power imbalance between the two partners in such a competition.