New Zealanders need to save more to improve wealth

By NZPA

Wednesday 2nd February 2005

New Zealand's high, consumption-based economic growth of the last decade, funded by foreign borrowing, will not lead to permanent higher living standards, according to an independent think-tank report.

Only by increasing savings will true prosperity rise, the New Zealand Institute report "Home Is Where The Money Is: The economic importance of savings" concludes.

New Zealand's consistently low level of household savings and high foreign debt inhibits growth, it says.

Author David Skilling says policies of the last two decades to remove incentives to accumulate wealth sets New Zealand apart from the international policy mainstream.

He argues the lack of asset ownership among many New Zealanders suggests the current hands-off approach to savings and asset ownership is inadequate.

"It is very unlikely to be a coincidence that New Zealand has the most hands-off approach to asset accumulation in the Anglo world and also amongst the worst outcomes in terms of savings and household wealth.

"There is no obvious crisis point beyond which all is lost. What we are saying is these are very serous problems and the sooner we start doing something about it the better," he said.

He said a key challenge was to shift from a consumption led economy to being investment and productivity led.

New Zealand could not simply rely on income growth and spend its way to prosperity.

Although this third of four papers on "creating an ownership society" focuses on the diagnosis, Dr Skilling hints the solution in the final paper will call for a more hands-on approach.

Deliberate action is needed to raise the level of household savings to lift investment and growth and to reduce interest rates, he said.

"The key difference between where New Zealand and other countries lie is that New Zealand does not have programmes in place to help people save."

Australia had compulsory superannuation, while Britain, Canada and the US gave tax concessions to encourage saving for retirement, education or home ownership," he said

Dr Skilling could take comfort from Prime Minister Helen Clark's opening speech to Parliament today where she said the Government was developing new savings initiatives to help people establish "a saving habit".

The Government would this year be announcing initiatives to encourage people to invest in workplace savings schemes.

How to encourage savings which could lead to home ownership was under consideration now, she said.

The report notes New Zealanders' wealth was significantly less than other Anglo Saxon countries - both in total and in that most wealth invested in housing. Some 800,000 adults own less than $20,000 each.

Dr Skilling a former senior Treasury adviser, said the accumulation of wealth has profound benefits for individuals and communities.

"Improving the asset ownership position of New Zealanders ought to be an important priority for action."

New Zealand's household savings rates had consistently been amongst the lowest in the OECD and despite New Zealand's recent high growth, household "dis-saving" has been increasing".

"New Zealand is one of the only developed countries where household financial wealth has reduced over the past decade."

The low level of household wealth and savings mattered, Dr Skilling said. It constrained the type and level of investment.

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