Phil: What is the Savings Work Group really for?

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Friday, August 27th 2010, 2:54PM 1 Comment

by Philip Macalister

Making sense of the government’s oddly-named Savings Working Group is something which is not that easy; nor is it easy to understand the reasoning behind it. With a name like Savings Working Group you’d be forgiven for thinking that it is all about personal savings. You’d think it would be all about making New Zealanders save sufficient capital for a decent retirement. Well that’s not the case. Finance Minister Bill English made it very clear to me that this group was mainly focused on looking at reducing the amount of money we as a nation borrow. That’s a good thing. The numbers and the story around this suggests it is an important issue. I wonder whether it is really a savings issue, as the name of the working group suggests. Added to that our offshore borrowings are made up of government, private sector and business and household borrowings. The first one is something English and his government need to deal with. One could argue it is doing that and that on an international basis New Zealand’s government borrowing as a percentage of GDP is actually quite low. Statistics NZ says that net core crown debt at June 30 was forecast to be $26.5 billion. If there was no change in net international liabilities in the three months ended June, government  debt would be just 15.9% of total net debt. That brings into sharp relief the business sector. On this point you have to wonder how the government, especially one which believes in economic freedom and international markets is going to address this. Surely the government believes in free markets and the freedom of capital and labour to move globally? To try and stop New Zealand businesses borrowing overseas seems oddly contradictory to National party idealogy? On the household sector the main part of this borrowing is the money we lend from banks to fund property investment and other things. With the Reserve Bank introducing the Core Funding Ratio and forcing banks to source more of their funds locally we must already be on the way to reducing our foreign borrowings? Some comments from Statistics New Zealand suggest we maybe on the right track to fixing this offshore borrowing issue. It says: "Overseas debt with a time to maturity of one year or less was 40.4% of the total at 31 March 2010, a decrease compared with 44.3% at 31 December 2009, and 43.0% at 31 March 2009. This was the lowest level since the time series began at June 2000. In general, overseas debt with a time to maturity of one year or less as a proportion of total overseas debt has been trending down from 31 March 2008. This is consistent with the Reserve Bank of New Zealand's Prudential Liquidity Policy for banks which requires banks to hold longer-term foreign funding." -- Statistics New Zealand. Back to retirement savings issues. It’s good that saving for retirement is not the group’s focus. Why? Well the government has taken off the table many of the key issues that need to be discussed. These issues relate to New Zealand Superannuation, the age of eligibility, even the rules around eligibility and the quantum of pension payments. These are vital issues that need to be discussed and debated. Unfortunately this government is to gutless to address them. The SWG has been given a bit of a brief to look at things like KiwiSaver and tax. What is interesting here is that these issues have already been debated at length and there is plenty of information out there. Surely there is enough information for a government to make some policy decisions – as they should be doing, so why another taskforce? This government has shown a predilection for these task forces. Generally they come out with some “radical” suggestions to start with then tone their comments down as they go along. This group is likely to do just that. It’s likely to include comments around personal savings, although its main focus is elsewhere. Then the government will use its focus groups and polls to see what it can get away with. I suspect English sees an opening for making some changes which previously he believed he couldn’t get away with. Maybe the SWG is really some sort of Trojan Horse. We will find out in time for Christmas as the group is due to report then. Very suspicious!

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

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