Understanding what undermines or builds social capital is important when estimating the impact that changes in social capital have on people's lives. The aim of this paper is to illustrate how the consequences of neo-liberal policy initiatives have impacted on linking social capital in one small and vibrant rural community in Australia. Policy changes affecting all levels of government and various commercial agencies have undermined people's capability for a range of actions which bring personal and community-wide social and economic returns. Rationalisation and regionalisation of services and commercial agencies, including local government amalgamation, and increased workloads have undermined people's capabilities for community engagement. Policy outcomes are at odds with the stated policy agenda of building community capacity.