2.5  Flow measures of saving

There are three sources of data available for constructing a flow measure of savings:

1. the System of National Accounts (SNA)
2. the Institutional Sector Accounts (ISA) (a sectoral disaggregation of the national accounts), and
3. the Household Economic Survey (HES).

The ISA disaggregate the national accounts into economic 'sectors' of similar agents. These sectors are non-financial corporations (producer enterprises), financial corporations, government, non-profit institutions serving households, households, and the rest of the world.

In a fully developed set of accounts, each sector has a self balancing accounting system that consists of:[6]

• A production account
• An income and outlay account
• A capital account
• A financial account
• A reconciliation account
• A balance sheet.

Each of these accounts are linked in order to achieve overall internal consistency. For example, from the production account can be obtained a measure of the operating surplus of firms in the economy. This in turn enters the income and outlay account as a source of income, which after including interest income and subtracting final consumption expenditures yields a measure of savings. Savings then enter the capital account as a key element which, along with the savings of foreigners (represented by net capital transfers) finance investment in the economy. National saving would then be calculated as the sum of each sector's saving, derived from the income and outlay accounts[7].

The sector accounts currently available consist of sectoral production accounts; income and outlay accounts and capital accounts, such that measures of saving are available for each sector.

The ISA spanning the period 1987 to 1988 were labelled 'experimental' by Statistics New Zealand, owing to data quality being inadequate for an 'official' release. The 1999 to 2009 release of the institutional sector accounts has incorporated various advances, including improved Annual Enterprise Survey data, taxation statistics, balance of payments and interest rate data. This more recent series is termed 'official'.

Claus and Scobie (2002) derived sectoral measures of saving (household, business and government) in two ways, one primarily using the aggregate SNA data, and the other relying on the institutional sector accounts.

The first method involves deriving business saving as a residual, the difference between national saving and government saving, where government saving is represented by the government's net cash flows from operations. Sectoral saving derived by this method will be termed 'aggregate' sectoral saving henceforth.

Saving can also be obtained entirely from the sum of sector savings, from the Institutional Sector Accounts (henceforth, 'Institutional Sector Saving').

The flow measure of national saving used in this paper calculated from the ISA is defined as:

     S_F = S_P + S_G (3)

where:

     S_P = S_h + S_B

     S_B = S_nfi + S_f + S_np

and:

     S_P = saving by the private sector

     S_G = saving by government

     S_h = saving by the household sector

     S_nfi = saving by non-financial corporations (producer enterprises)

     S_f = saving by financial intermediaries

     S_np = saving by non-profits entities

     S_B = saving by the 'business sector'

Finally, the Household Economic Survey (HES) is often used to approximate a flow measure of the household saving rate. The HES is an income and expenditure survey of New Zealand resident households. The complete HES, collecting both income and expenditure data, was conducted annually from 1974 to 1998, and subsequently triennially. It has been used to estimate household saving rates in New Zealand, and for a range of other economic analyses, due to its rich set of data on household characteristics; see for example Gibson and Scobie (2001).

However the HES was not designed specifically to measure savings rates, and Statistics New Zealand emphasises that its results must be interpreted with caution, for a number of reasons as outlined in Bascand et al., (2006). The HES underestimates a substantial amount of expenditure, particularly on durables, and goods such as tobacco. However, the Household Outlay and Income Account (HOIA) is also not free of measurement issues, and is thought to underestimate various forms of income, notably trust income and foreign investment income and transfers (see Bascand et al., 2006 for an analysis of the differences in coverage and measurement).

Table 2 summarises the various available data sources for constructing measures of sectoral saving in New Zealand.