4  Trends in New Zealand saving rates

This section compares the different measures of saving discussed in the previous section. We begin with the flow measures of saving and then examine the balance sheet data.

4.1  Flow measures of saving

Figure 4.1 plots the sectoral measures of household, government and business saving together with the Institutional Sector Accounts, all as a percent of (nominal expenditure) gross domestic product (GDP). The sectoral measure of household saving is the same as in the Institutional Sector Accounts (apart from small discrepancies because of revisions), but the two government and business measures are different.

Figure 4.1 shows that the household saving rate was relatively stable during the 1970s and 1980s. But it has been declining over the 1990s and negative since 1994.

The government saving rate declined from the early 1970s and was negative for a long period of time. It improved from 1992 and has stayed positive since 1994. By 2001, government saving represented 82 percent of total national saving. A comparison of net cash flows from operations and NZISA saving in Figure 4.2 shows that the two measures are largely consistent.

Figure 4.1 - Household, government and business saving (as a percent of GDP)

Source: Statistics New Zealand (official and experimental series), The Treasury and authors' estimates

Business saving has contributed a relatively large proportion to national saving and generally has been positive. A comparison of the NZISA and sectoral saving rates for businesses shows large level differences for several years that data for both measures are available. This is in part because any unidentified amount of saving, reported separately in the Institutional Sector Accounts, is included in the sectoral measure of business saving (see Figure 4.2).

Figure 4.2 - Government and business saving (dollar millions)

Source: Statistics New Zealand (experimental series), The Treasury and authors' estimates

Household, government and business saving add up to aggregate, national saving, which is plotted in Figure 4.3, as a percent of GDP and disposable income. Sectoral and Institutional Sector Accounts national saving are the same (apart from small discrepancies because of revisions) and Figure 4.3 thus only plots the longer sectoral saving rate from the National Income and Outlay Account. National saving as a percent of GDP has an “apparent” downward trend over the whole period, but has remained positive apart for two years, 1992 and 1993. A similar picture arises from national saving as a percent of disposable income.

Household and government saving from the Institutional Sector Accounts are plotted as a percent of disposable income and GDP in Figure 4.4. As a percent of disposable income, both measures of saving show larger swings than as a percent of GDP. This suggests that disposable income rises less and falls more than GDP.

Figure 4.3 - Net national saving

Source: Statistics New Zealand and authors’ estimates.

Figure 4.4 - Institutional Sector Accounts

Source: Statistics New Zealand (official and experimental series).

Household saving constructed from the Household Economic Survey as disposable income minus consumption expenditure is plotted in Figure 4.5 together with saving from the Household Income and Outlay Account. Both are in percent of disposable income. Figure 4.5 shows that the HES and HIOA data provide a rather different picture of the household saving rates, both in terms of levels and trends. The HES saving rate has generally been trending upwards, increasing from around -4.3 percent in 1984 to about 4.9 percent in 2001.[12] Over the same period, the HIOA saving rate fell from around 1.7 percent to about -3.7 percent of disposable income.

A project is currently ongoing at Statistics New Zealand to reconcile the HES and HIOA data. We attempt to explore a few issues and reasons that could potentially explain the differences between the two data sources.

The System of National Accounts seeks to track all incomes and expenditures regardless of source. Annual saving is then computed as the difference between disposable income and expenditure. The financial model of household behaviour that underlies the Household Economic Survey is implicitly a cash flow one and identifies cash flows into and out of consumer units. As a result, the Household Economic Survey (HES) and the Household Income and Outlay Account (HIOA) do not use all of the same variables. For example, the HIOA imputes a value for interest that is derived from superannuation schemes whereas the cash based HES does not, because people would not know how to impute a value for the interest that they have earned on their superannuation schemes. Another example is imputed rent or surplus from operation of owner-occupied dwellings, included in the HIOA but not the HES.

Figure 4.5 - HIOA and HES household saving rates (as a percent of disposable income)

Source: Statistics New Zealand and authors’ estimates.

Another example would be incomes paid but not received such as employer pension and health contributions. In HES, these items are not included as part of income. HES only collects data about taxable income and does not refer to anything on which the fringe benefit tax is liable. On the other hand, these items are included in SNA income for households. They are covered under compensation of employees, which is remuneration of employees including employers' contribution to superannuation schemes and fringe benefits provided. Employers' Accident Compensation Corporation (ACC) levies paid on behalf of the employee are also included in the SNA measure of income but not the HES.

On the consumption side, SNA household consumption includes payments made by the government on behalf of households (e.g. free medical care for under-six year-olds). HES does not account for this item.

These differences help explain the discrepancies in levels between the two measures. However, it remains that the HES data show a rising trend when saving is measured in a consistent manner over time. This stands in marked contrast to the HIOA data.

In the absence of more information regarding the reliability and credibility of either data source, it is appropriate to place more reliance on the published saving estimates of the Household Income and Outlay Account. There are three main reasons for this. First, the SNA based HIOA is the official Statistics New Zealand data source for household saving. Second, the national accounts are derived from a variety of data sources. In contrast, the Household Economic Survey is only one data source so there is the possibility that not all items have the same reliability if some questions are traditionally not answered well. For instance, social assistance grants in the Household Income and Outlay Account (e.g. unemployment benefits) that households receive from the government are sourced directly from the government records. This is the exact total that the government pays out to households. In contrast, the HES is a sample survey and therefore only a sample of social assistance grants would be surveyed - thus not giving the exact total. Third, the SNA based HIOA is compiled in an international framework, the System of National Accounts 1993, which is comparable to other countries.