In light of today's story about a international traveler arriving in NZ, admitting she was visiting DotCom and subsequently being detained, thoroughly inconvenienced and allegedly:

"told to surrender passwords to her laptop and phone for curious border agents. Ms Torrent claimed she was warned that refusal to hand over the passwords voluntarily meant she would lose her equipment and it would be breached anyway."

...I was wondering what the law was in NZ on this?

I am assuming that though one is within one's rights to refuse to give up passwords to devices, I presume then it is within the right of customs to refuse you entry to the country?

Should they be able to do so on this basis?

It seems a big stretch in terms of appropriate border control powers being able to demand and gain access to someones entire life - there is likely any number of critical personal details on an electronic device which you would reasonably expect to be able to keep private even when traveling internationally. I would assume that giving up access to the device leaves everything at the mercy of customs and you are not necessarily able to monitor or control what then happens to your unlocked laptop or phone once surrendered?