The Main Report

You can count on Reserve Bank Governor Alan Bollard to hit the
nail on the head.

His warning over NZ’s level of private debt, funded mostly from
banks which borrow overseas, is a wake-up call after the Global
Financial Crisis. But warning, and scaring people is one thing –
the other side of the coin is incentives.

People have heard these warnings about savings before. But with
the pitiful return they get, which is then ruthlessly taxed,
there is little incentive to put money away.

The NZ stock market is more akin to a roulette wheel, and people
have realised if they don’t save very much, the world is not
going to come to an end. What NZers need is an incentive to save.

In Aust half the interest earned from savings accounts is now tax
free (with conditions), and their superannuation scheme, to which
all employees contribute 9% of earnings is taxed at 15% and with
imputation credits can be as low as 6.5%

While NZ savings interest is being hit with marginal rates of
tax, it will not be attractive. The Main Report Business
www.mainreport.co.nz looked at Bollard’s call for more savings.

“NZers Must Save More, Borrow Less
Reserve Bank Governor Alan Bollard says more household
belt-tightening and a stronger switch by banks away from
unproductive personal credit growth are necessary if NZ's
ongoing risk of economic shocks caused by the country's high
foreign indebtedness is to improve.

He says the Govt’s books are in good order, but when only the
external accounts are taken into account, New Zealand shifts
dramatically to the risky end of the spectrum, sitting seventh
most fragile, with Aust - also a high current account deficit
economy - at sixth.

Bollard says there is a lot which can be and is being done to
improve the situation, like designing fiscal and tax policy to
reduce vulnerabilities, putting in place cautious bank
regulation, and improving access to a range of investment
opportunities. "Ultimately, however, it is up to NZers to
improve the quantity and quality of household savings.”

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But he says one of NZ’s prime problems is low savings rates, with
very limited financial savings and stocks and shares.
Overwhelmingly, household assets are invested in housing and
other property.

He warns in the end either the markets will penalise us by
requiring a larger premium for its continued funding, and/or the
sheer size of servicing our obligations will become an
intolerable burden to the country. "Rather than await such
painful punishments, we should be looking to improve the
situation."

It is clear Bollard is right. There is too little saving and
productive investment in NZ, but people must be given positive
reasons to save. Scare stories won’t work.

Many people are struggling to get by on what they earn. Unless
there is a real reason to save or invest in NZ shares, they will
choose not to do it.

Compulsion is an option, but surely it would not be needed if
people could see clear advantages to putting money in the bank.
At the moment, there really aren’t any, and this is the problem.
ends

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