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Better saved than sorry: Treasury

The Treasury says some of its work on savings policy has been misrepresented and it is time to set the record straight on what its approach to savings really is.

Thursday, August 16th 2007, 7:04AM
The Treasury is the Government's lead advisor on economic and financial policy and its secretary, John Whitehead, outlined the department's views in a speech earlier this week.

"On balance we think that further or stronger pro-saving action is now justified," he said.

Treasury has advised the Government to encourage more private saving.

"Let me just say upfront that the Treasury is not calling for compulsory saving. We recognize that saving is not necessarily the right approach for all individuals at all stages of their life.

"Our judgement for further or stronger action rests on a least-regrets approach in light of data uncertainties, macroeconomic imbalances, and the possibility that individuals are basing savings decisions on long-run expectations that could turn out to be mistaken."

He described Treasury's stance is "better saved than sorry".

Whitehead says Treasury is outlining its position as some bits of its research in this area had been "at times being misunderstood and, perhaps because of this, misrepresented."

In particular, media coverage of Grant Scobie's work did not paint the full picture of the saving issue and the Treasury's collective view on it. Instead, we had a string of stories and opinion pieces insisting that the Treasury view was New Zealanders were saving adequately for retirement and there's no saving problem."

He says that is not the complete picture.

"If some people have been looking at our work through a keyhole, it's up to us to fling open the door."

In a speech to Chapman Tripp earlier this week Whitehead discussed the various ways savings levels can be measured.

The conclusion was a series of conflicting answers.

However, Treasury says stronger pro-saving action is "desirable for precautionary reasons, growth reasons and effectiveness reasons."

The first precautionary reason is that savings can impact on the persistent macroeconomic imbalances such as the high current account deficit and net external liabilities.

Second, New Zealand faces the strains of an ageing population. Just as it makes sense to prepare for some of this via the New Zealand Superannuation Fund, it also makes sense to encourage people to take action on their own personal saving.

Thirdly, household saving appears, on some measures to be very low and undiversified. A savings policy, like KiwiSaver, may result in better asset diversification.

Fourthly, Whitehead says "there are saving data uncertainties at a micro and a macro level. When the data doesn't provide a clear picture, it's better to take precautions now than to be sorry later. That's why there's seatbelts in cars, life-jackets on boats, and an insurance industry."

He says increased savings may help economic growth, and higher income for New Zealand and New Zealanders.

Download/read speech and slides. The speech is here and slides slides here.
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AIA 4.55 ▼2.29 ▼2.59 ▼2.65
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ANZ Special - 2.29 2.69 2.79
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BNZ - Mortgage One 5.15 - - -
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HSBC Premier LVR > 80% - - - -
HSBC Special - 1.99 - -
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ICBC 3.69 2.25 2.35 2.65
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Median 4.55 2.79 2.99 2.80

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