Perhaps it was consequence of the campaign for electricity savings and householders’ positive response. Kiwis who can be persuaded to save power to avoid winter blackouts presumably can be persuaded to save more for their old age too.
Whatever the thinking, there was mid-year outbreak of cackling about Kiwi savings habits and the promotion of various remedies.
Typically, concerns were expressed by people with vested interest in building Kiwi nest-eggs. The Investment Savings and Insurance Association, for example. It mused that private savings have been stifled by the public’s confusion and general lack of understanding about how and why they should save.
After urging people for years to save more for their retirement and pleading with the Government for tax rules to encourage savings, it has launched project aimed at getting politicians, employers and trade unions to agree on broad framework to boost private savings. When the formula has been developed, the more problematic issue of shaping appropriate government policies can be tackled.
Vena Crawley, head of marketing at Sovereign, sounded note of urgency. “Our savings behaviour is spiralling towards serious crisis despite New Zealanders’ belief in savings, the great work of the retirement commissioner in trying to alter attitudes towards saving and various other government initiatives,” he declared.
New Zealand has one of the lowest private savings rates of any OECD country, he pointed out, and Sovereign is challenging other financial services institutions, the Government and New Zealanders generally “to wake up to serious savings issue facing the nation”.
The Investment Savings and Insurance Association’s campaign is called “Save New Zealand”. The obvious implication to be drawn from this and from the tone of Crawley’s statement is that the country is on the brink of some sort of crisis.
The Northern Employers’ and Manufacturers’ Association declared its support for the association’s savings scheme, to condition people to accept that saving is something everybody does and benefits from. “People won’t start saving while they think that retirement income will be covered by general taxation as pay-as-you-go basis,” said chief executive Alasdair Thompson.
His hand hovered on the national crisis button, too. “The unfunded pension liability of France now exceeds 200 percent of GDP; Italians pay third of their tax on salaries and wages to fund their pensioners. New Zealand is headed the same way.”
United Future pitched in on June 4, when party finance spokesman Gordon Copeland released “detailed specific policies intended to deal with New Zealand’s looming balance of payments problem.”.
His package of remedies included measures to encourage private savings, such as 33-cent in the dollar tax rebate for long-term savings through approved superannuation funds on the first $2000 saved each year. He also called for lowering of the tax rate to 30 percent coupled with the ongoing reduction of compliance costs.
The persistence of current account deficits averaging around 4.5 percent of GDP over the past decade indeed attests to the country’s savings shortcomings. Each deficit, generated by our demand for goods from overseas, investment capital and so on, must be financed from the savings of other countries.
Unfavourable comparisons of our average national savings rate to the OECD average – 15.5 percent against 21 percent – reinforce an impression of profligacy. Whether this puts us in the international dog-box is not so obvious.
The International Monetary Fund undertook one of its regular checks of the New Zealand economy recently and especially looked at our savings performance. It was undismayed, pointing out that cross-country comparisons of savings rates can be misleading because there may be sharp variances between countries in institutional arrangements, financial market developments and societal preferences. In New Zealand’s case, it observed, the need for personal savings is significantly reduced by the public provision of pensions and health care.
Well-developed financial markets, furthermore, are providing households with easy access to credit, and major purchases likes houses and cars reduce household savings.
For several reasons, the savings rate here “might be expected to be lower than in many other countries”, the IMF said.
The IMF looked into the notion that higher savings would promote greater growth, too, but was not convinced. Higher domestic savings generally would be expected to reduce external borrowing – or the use of foreign savings – rather than significantly lower the cost of capital and raise domestic investment, it said.
No, this does not mean we can relax and stop building up personal savings because the Government will maintain the standard of living to which we have become accustomed in our old age. It does mean we should not be scared into savings because our rate of saving is lower than in other OECD countries.
Bob Edlin is regular contributor to Management.
