The quality of investments rather than the quantity of savings should be the Government’s key consideration in its
planned superannuation fund says WestpacTrust Chief Economist Adrian Orr in the latest Quarterly Economic Overview.
Mr Orr said: ”New Zealand’s alleged savings crisis is more related to the quality of investment, not the quantity of
savings. For example, New Zealand’s investment rate has been higher than the United States - but growth and productivity
have been much poorer – illustrating that the quality of New Zealand’s investment is an ongoing concern. Japan, for
example, has enormous savings but has struggled to grow for over a decade.”
Mr Orr also questions the nature of the government’s involvement in increasing overall savings, saying there must be a
balance between providing for those who are unable to save and maintaining an incentive to save and invest wisely for
those who can.
The report suggests that a public who believes their health, education, welfare and retirement income are all ‘bought
and paid for’ via their taxes, is unlikely to be concerned about their other investments. In this way, government
involvement is responsible for eroding the incentive for individuals to save.
Mr Orr’s report outlines several uncertainties about the Government’s proposed retirement savings scheme and suggests
that the best solutions will be found in a partnership between private and public savings providers.
One suggestion is that the Government could enter a retirement income subsidy arrangement for low income earners,
matching personal savings dollar for dollar.
The benefits of this would include an improved rate of personal retirement savings, healthy competition for managed
funds in the private sector, government support is targeted better and the incentive to save and invest wisely is
maintained.
In the WestpacTrust Quarterly Economic Review Mr Orr also outlines inadequacies in the way New Zealand’s national
accounts and national savings rates are measured in official statistics.
“The method of measuring household savings - simply taking the difference between household income and expenditure - is
at best misleading,” the report says. “When Government spending on services and other forms of private investment are
included, hey presto – New Zealand’s so called savings crisis rapidly disappears.”
ENDS