Over recent years, the adequacy of saving in New Zealand has been a key area of policy debate. The general view is that saving rates in New Zealand are too low and hence there is a shortage of saving. In this occasional paper, Westpac Trust challenge the view that New Zealand lacks saving. Rather, they argue that the economy suffers more from poor performing investment.
While the saving rate remains low at the household level, many forms of saving are unaccounted for – including government expenditure on health, welfare, education, and retirement income. In addition, households have access to considerable savings – or wealth – which are not included in a lot of the policy analysis, especially when it comes to retirement income provision. New Zealand also has an open capital market, providing access to the world’s pool of savings. New Zealand’s national saving rate is also comparable to other, successful, economies such as the US and Australia. On balance, it is hard to claim New Zealand lacks access to capital.
However, it can be argued that when it comes to the use of savings (i.e., investment), New Zealand performs poorly. Many of New Zealand’s investments have below international rates of return, with New Zealand’s per-capita income slipping behind that of most OECD countries. Pursuing policies that improve the incentive structure for individuals to invest and work smart – raising the quality of investment - appears more rewarding than policies that concentrate on raising the stock of savings.
This occasional paper has been produced by the Economics Team at Westpac Institutional Bank.
downloaded the report as a PDF file here.
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