6  Measurement issues with national accounts saving rates

The remainder of the paper considers measurement issues of saving. The focus is on national accounts measures as these are the official saving measures that are generally used in the analysis and discussions about saving. Measurement issues can be grouped into two broad categories: (i) the difficulty of measuring saving, and (ii) the economic meaningfulness of conventional measures of saving. We will discuss these in turn after a few observations about the New Zealand data.

6.1  The measurement of saving in New Zealand

National saving

National saving in New Zealand is effectively calculated from two sources of data (i) from the National Income and Outlay Account as the difference between disposable income and total consumption expenditure, and (ii) from the flows of investment and net lending in the Capital Finance Account. While national saving may be inaccurately measured in particular years, it is unlikely subject to systematic errors through time. However, it is conceivable that New Zealand saving will be consistently different from that in other countries because of given characteristics of the New Zealand economy.

Retained earnings are a case in point. Retained earnings of foreign direct investment (FDI) are included in the current account (and hence are not counted in national saving). But they are excluded from the current account for portfolio investment (and thus included in national saving).[21] As a result, the current account will be larger (and national saving lower) in countries with a relatively larger proportion of foreign direct investment (all else equal).

In New Zealand, the share of foreign direct investment is higher than in other OECD countries. Foreign direct investment tends to be higher in New Zealand, in part, because companies are smaller here and the ownership threshold to qualify as FDI is more easily reached. The higher proportion of FDI will lead to a relatively lower measured saving rate because of two effects. First, saving will be lower because non-residents hold a larger proportion of FDI. Secondly, saving will be lower because New Zealand residents hold a relatively larger proportion of foreign portfolio investment than non-residents hold portfolio investment in New Zealand.

Definitional changes can have large effects as can be seen from the revisions to net national saving from SNA68 to SNA93, plotted in Figure 6.1. The likely magnitude of the discrepancy between New Zealand and other countries’ saving rates because of given characteristics of the New Zealand economy and the use of particular definitions is currently unknown. It needs further investigation before conclusions can be drawn about the adequacy of saving in New Zealand.

Figure 6.1 - Net national saving SNA68 and SNA93 (dollar millions)

Source: Statistics New Zealand.

Household saving

Household saving is obtained from the income and outlay accounts only and does not have the same degree of accuracy as the national saving rate, which is effectively derived from two sources. Measured as the difference between two large numbers (current income and expenditure), household saving rates are thus subject to potentially wide margins of error. This is because any errors in other series will be reflected in the saving estimate. For example, in 2001 household disposable income was about $63.8 billion and household consumption $66.1 billion. This implies a “dis-saving” of $2.4 billion or -3.7 percent of disposable income. If income was under-estimated by, say 2 percent, and consumption was over-estimated by 2 percent, then the saving rate would have been +0.4 percent instead of -3.7 percent.