3  Available measures of saving in New Zealand

Aggregate (national) saving is the sum of private (household and business) and public (government) saving. It can be measured in terms of flows as the difference between current income and expenditure or in terms of stocks as the change in net wealth. Table 3.1 provides a summary of the different measures of saving available for New Zealand.

3.1  Flow measures of saving

National (aggregate) saving is contained in the National Income and Outlay Account of the System of National Accounts 1993 (SNA93).[2] It can be divided into saving by sectors, i.e. household, business and government saving. The System of National Accounts also provides a measure of household saving, in the Household Income and Outlay Account (HIOA), but not for business or government saving. SNA93 national and household saving rates are only available from 1987 onwards. Data prior to 1987 were constructed by splicing the growth rates of the SNA68 series to the levels of the SNA93 series. This approach was used for other series as well, whenever possible. A detailed description of the data is contained in Appendix A2.

Often used as a proxy for the government’s contribution to national saving are the central government’s net cash flows from operations (see, for example, Buckle, Kim and Tam, 2001).[3] Net cash flows from operation can be derived from the government’s financial statements prepared by The Treasury. They are based on the Generally Accepted Accounting Practice (GAAP).[4] Business saving can then be calculated as the residual between national saving and household and government saving.[5] These measures are called “sectoral” saving measures henceforth.

The New Zealand Institutional Sector Accounts (NZISA) are a second source for saving rates by sectors in terms of flows (Statistics New Zealand, 2001).[6] The latest Institutional Sector Accounts data are based on the System of National Accounts 1993 and available from 1987 to 1998. The accounts for institutional sectors include:

• producer enterprises
• financial intermediaries
• general government
• private non-profit organisations serving households
• households
• rest of world

The NZISA are not official Statistics New Zealand series and are labelled experimental. The primary reason is that the data sources (which produce data on value added, or production related income and expenditure) are not entirely appropriate for the corporate and financial sector accounts (see Statistics New Zealand, 1999).[7]

The NZISA household sector account is consistent with household saving from the Household Income and Outlay Account, and total NZISA saving with the National Income and Outlay Account. Moreover, the rest of world saving is in line with the current account data from the balance of payments. In this paper, we calculate NZISA business saving as the sum of saving by producer enterprises, financial intermediaries and private non-profit organisations serving households. However, the sum of household, business and government saving in the Institutional Sector Accounts do not add up to total saving because of measurement problems of the producer enterprise and financial sectors (see footnote 7). As a result an unallocated amount is attributed to an unidentified sector in the NZISA.

General government in the Institutional Sector Accounts includes central and local government and rünanga iwi. Government net cash flows from operations only in part account for local government and rünanga iwi saving. This is because the operating balance captures transactions between the central government and local governments and rünanga iwi, but not transactions between local governments and rünanga iwi and with other sectors. Moreover, the NZISA measure of government saving is an accrual based measure whereas the net cash flows from operations measure is cash based.

A measure of household saving in terms of flows can also be derived from the Household Economic Survey (HES), which consists of a series of cross-sectional surveys. Data are available for the June years 1984 to 1998 and 2001. Household saving can be constructed as disposable income minus consumption expenditure. Disposable income is calculated from estimated taxable income minus net tax plus non taxable social assistance payments.

It should be noted that the Household Economic Survey was not designed to measure household saving. Moreover, the measure of saving we use in this paper is different from Gibson and Scobie (2001), who derive household saving by subtracting current consumption expenditure from disposable income. Current consumption expenditure is total household expenditure less expenditures that provide consumption benefits over more than one year (e.g. consumer durables, educational fees). Gibson and Scobie also remove observations where household disposable income is reported as negative or the age of the household head is less than 19 years or greater than 74 at the time of the survey. These adjustments probably produce a more relevant measure of saving in an economic sense, but would make the measure less comparable to saving as measured in the Household Income and Outlay Account. For this reason, we simply calculate household saving as disposable income minus consumption expenditure.

3.2  Stock measures of saving

A stock measure of saving can be derived for households from the net wealth data constructed by the Reserve Bank of New Zealand (see Thorp and Ung, 2000 and 2001). The data, which are in December years and available for 1979 to 2000, are obtained from regular quarterly and monthly surveys conducted by the Reserve Bank and an annual December survey. Net wealth is the value of households’ assets (financial and real) less household debt. Saving can then be measured as the change in the stock of accumulated net wealth.

Household net wealth is likely to be understated. Household liabilities, which mainly consist of home mortgages, are almost certainly overstated.[8] This is because some home mortgages are in effect loans to small businesses (secured by residential mortgages).[9] Assets, on the other hand, are likely to be understated. Financial assets are understated as direct investment in non-financial substitutes, like forestry and farms, are not captured in the data. Moreover, the value of household investment in businesses not priced through the stock market is not captured.[10] Real assets are also understated. Household real assets comprise house values alone and, for example, exclude consumer durables.

A household balance sheet measure of saving can also be constructed from WestpacTrust’s Household Savings Indicators (HSI), compiled by Morningstar and NZIER. The HSI series are available on a quarterly basis from 1989 onwards. The HSI largely relies on Reserve Bank of New Zealand data and some estimates from other sources.

A measure of business saving can be derived from the Annual Enterprise Survey as the change in business net wealth, assets minus liabilities (current and other). Consistent time series are available for the years 1995 to 2000 but exclude some industries. These are farming, water supply, commercial property, central and local governments, public order and safety, creative arts, sports and interest groups organisations. Including these industries, firms’ net wealth is about 62 percent higher in 1999 and 57 percent higher in 2000.[11]

A stock measure of government saving can be derived as the difference between the opening and closing net wealth position of the crown. Crown balance sheet data, which are collected by The Treasury, are available for the June years 1992 to 2001. No balance sheet data are available at the national level.