Executive Summary
Saving rates in New Zealand, both at the household and national level, are generally well below those of other OECD countries. This has given rise to long-standing concerns about the level of savings, and successive governments have introduced a range of measures to foster greater savings, both public and private.
A necessary condition for introducing sound policies towards savings that will be genuinely welfare enhancing, is to have a solid base of evidence. The starting point for that evidence lies with the measurement of savings. However, the measurement of saving is fraught with both conceptual and practical issues. An understanding of the implications of these issues is critical when using evidence on the savings record of households, firms and the government as a basis for policy decisions.
The most widely quoted measure of saving in New Zealand is the household saving ratio published by Statistics New Zealand. It is important to understand the issues of measurement and classification which inevitably arise in savings measurement, and how these could cloud the genuine underlying changes in household saving behaviour. Misperceptions about the level of saving, and the implications thereof, could potentially lead to policy interventions that reduce, rather than enhance economic welfare.
This paper documents the standard measures of saving from the national accounts. In the case of the household sector it contrasts these with estimates of saving rates derived from changes in the stock of household wealth. While the two are conceptually identical, a full reconciliation must await the development of more comprehensive data. However the results suggest that the long run average saving rates by households have in fact been considerably higher than the measure derived from the national accounts.
A second contribution of this paper is to present a series of adjustments to savings rates to reflect the impact of inflation, to reflect the boundary between consumption and investment, to consider the role of the hidden economy, and assess the impact of the New Zealand Superannuation Fund for household and national savings. Many items in the national accounts are treated as current consumption (including expenditure on health, education, consumer durables) with a result that savings are under stated. The impact of adjustments to investment and allowing for inflation is to raise the estimate of the average net household saving rate from -4.1% to 0.3% of disposable incomes between 1996 and 2011. Likewise, the estimate of the average net national saving rate is increased by those same adjustments from 2.8% to 11.8% of GDP over the same period.
Finally, when allowance is made for inflation, the measured net international investment position appears to be overstated. This has the consequence that the current account deficit is correspondingly overstated. This difference is about 2 percentage points of GDP. Once the adjustment is made for inflation the long run average level of net external liabilities (excluding equities) falls from 66.0% to 64.3% of GDP over the period of 1989 and 2011.
A potentially significant adjustment arises from the stock of wealth that has accumulated in the New Zealand Superannuation Fund. To the extent that this is viewed as funds contributed by households through taxation for the provision of retirement income in future, it represents savings by households. On average the stock measure of savings is some 2.1 percentage points of household disposable income higher between 2002 and 2011, when allowance is made for the net wealth accumulated in the NZSF.
Statistics New Zealand is constantly seeking improvement in the collection and coverage of the data it publishes. Important revisions have been made to the household saving rates. The consequence of these is that some of the very extreme levels of household dissaving seen between 2004 and 2009 have been revised such that the current estimates of negative saving by households from the household income and outlay account are very much more modest. Over this period the annual average change was an improvement in the saving rate of households of over 7 percentage points of disposable income. These revisions underscore the importance for the policy debate to be grounded in solid evidence, and for full cognizance of the limitations of the underlying data.
Overall the results presented here suggest that broader measures of saving might well be considered as complements to the official series when analysing the saving behaviour of firms and households, and the net saving of the nation as a whole.
