4 Adjusted measures of saving
This section initially outlines a range of conceptual and measurement issues involved in the derivation of savings rates.[18] This is followed by a discussion and estimates of four sets of adjustments.[19] The first is an allowance for the impact on inflation on measured saving rates (Section 4.2). The second discussion discusses the role of the hidden economy in savings measurement (Section 4.3). The third series of adjustments are incorporated to reflect the fact that some elements of both private and public consumption expenditures may more appropriately be treated as investment (Section 4.4). Finally the implications of the New Zealand Superannuation Fund (NZSF) for national and household saving are explored (Section 4.5).
4.1 Conceptual and measurement issues
An underlying issue which arises with many macroeconomic balances is that of being calculated as a residual of two large flows. In the case of savings, the flow measure is found as the difference between income and consumption. The consequence is that the estimate of savings can become very sensitive to any errors in the measurement of income and consumption. To illustrate: suppose income was 100 units and consumption 95, then measured savings would be 100 - 95 = 5. Suppose however that both income and consumption are measured with error of say 1%, such that income was actually 101 and consumption 94 implying savings, the difference, would be 7. In other words a 1% measurement error in the underlying aggregates could potentially lead to overstating savings by 40%.
Secondly, the boundary between different sectors is not always clear. In the context of savings this arises in the case of the business and household sectors. An example is the treatment of income from small scale proprietorships. In the system of national accounts applied by Statistics New Zealand, entrepreneurial income from owner-operated businesses is credited as an income in the household income and outlay account. This effectively means that any income that is retained in the unincorporated business is not recorded in the business sector saving. While this difference nets out when estimating total national savings it does mean household saving would be overstated relative to business saving. This is in no sense “wrong”: it simply reflects a different underlying concept of the household - one that may incorporate that which would normally be thought of as business activities.
The system of national accounts excludes capital gains/losses associated with holding or trading capital and financial assets. For example, any increase in the value of a house owned by a household will not be included in the income and outlay account. This results in the gains/losses from such assets to be excluded in the flow measure of saving, and is a major source of the difference between flow and stock measures. Gains and losses due to exchange rate movements on assets denominated in foreign currencies are also not included. The underlying rationale for the exclusion of capital gains and losses is that unrealised capital gains provide no investable funds, and neither do realised gains. In the latter case the funds that seller of the asset gains are offset by the funds that a buyer must apply to the purchase (Reinsdorf, 2005).
