In the year to March 1999, according to
the annual national accounts, our savings fell to 2.6 percent of national disposable income. That was the lowest level recorded since the national accounts series began in 1962.
We don’t need those annual accounts to tell us we have savings problem, of course. The quarterly current account deficits in the balance of payments are another measure of the extent to which New Zealand is funding its spending and investment with the savings of foreigners.
So why are our savings levels so low? Tight fiscal policies and the increasing application of the user-pays principle, perhaps. In report on consumer spending in June 1998, Statistics New Zealand said one likely cause of low savings levels was cuts to previously subsidised government services, such as health. Households were having to pay directly for more of those services and were spending more than double what they had to pay in 1987, with average spending up 115 percent.
Easier credit card use might be another factor, the Statistics New Zealand report suggested. The Treasury has other ideas, more assertively set out in chapter urging tighter fiscal policies in briefing papers to the incoming Government.
The new Government must try to run higher fiscal surpluses than those projected in the Pre-election Fiscal and Economic Update, the Treasury advised, because New Zealand is running large current account deficit and high levels of external liabilities. This raises the danger of sharp change in investor confidence triggering crash of the exchange rate, which would have severe economic repercussions.
Investor confidence would be buoyed by perceptions of government with the will and ability to control its own finances. Running bigger surpluses would help create the right image.
As to the current account deficit, it could be signalling either that New Zealanders aren’t saving enough or that there is inappropriate investment, the Treasury said. It proceeded to rule out the latter possibility. Microeconomic reforms over the past 15 years, including financial market deregulation, tax reform and monetary policy reform, had helped to create more neutral investment environment, the briefing papers insist. “However, government social assistance, especially retirement income policy, does reduce household incentives to save.”
The evidence for this? Good question.
Back in 1991, Treasury official presented paper to seminar on savings run by the now-defunct Planning Council. It made some interesting points.
For example, it emphasised the importance of looking at trends in national savings as whole, because “changes in savings behaviour in one sector tend to be offset by changes in other sectors in the economy”. In other words, if we crank up household savings, there will be savings declines elsewhere, and while household savings had declined in the 1980s, national savings as percentage of GDP had been quite stable.
More important, the Treasury paper emphasised there were obstacles to researching savings behaviour. Although Statistics New Zealand for some time had published figures for national savings, official data on sectoral savings were “quite sparse”. The department had filled major gap in macroeconomic statistics by producing an annual household income/outlay account, but “it is more difficult to go further and separate out government savings and corporate savings”.
Nothing much has changed since then. Legislation resulting from the 1993 retirement accord on superannuation required regular reviews of progress. The first was in 1997. Alas, the review team reported, they lacked the statistics to do the job.
So committee was set up to find out what statistics are needed. Integrated Economic Services economist John Lepper was member of that group and has been urging the establishment of flows of funds statistics, to show where money comes from and what happens to it.
IES is now providing economic advice to Deputy Prime Minister Jim Anderton and Lepper was astonished by the Treasury’s assertion in its briefing papers.
No-one knows what makes people save in New Zealand because there are no flow of funds data, he said. “The savings data we have in this country are hopeless.”
Lepper accepts that in countries with reliable savings data, there is evidence of household savings ratios apparently being altered by changes to superannuation policy to make people more self-reliant. But there are signs, too, that this probably leads to over-saving by householders scared into providing for their retirement, and to under-saving by other sectors.
Bob Edlin is Wellington-based economic commentator and journalist.