“A focus on New Zealanders' savings habits in explaining the current account deficit is misplaced”, Roger Kerr, executive director of the New Zealand Business Roundtable said today.

“There is no evidence that New Zealanders are poor savers. Total (gross) national savings (government, business and household) is only a fraction below Australia as a percentage of GDP, and well above the savings rates of the United States and United Kingdom, according to OECD figures.

“Moreover, the balance of payments is affected by many other factors, such as export and import volume growth and the terms of trade, and influences on them such as government spending, the competitiveness of the economy, monetary policy and the real exchange rate.

Statistics New Zealand figures confirm this point. The measured rate of (net) national savings rose in the five years to March 2005 while the current account deficit increased from 4.4 percent to 7.3 percent of GDP.

Mr Kerr said it was particularly misleading to look at household savings alone, which were subject to numerous measurement problems that the alarmists were ignoring. However, if the government wanted New Zealanders to save more privately, it should stop over-taxing them, lower and flatten income taxes, and address long-term problems of New Zealand Superannuation instead of increasing benefits, as it was currently doing.

“The Treasury's forthcoming long-term fiscal assessment will surely confirm the importance of pre-emptive action on NZS.”

Commenting on the relationship of government spending to the current account deficit, Mr Kerr said that core Crown expenses had increased by a massive three percentage points of GDP (from 29.2 to 32.3 percent) in the two years to June 2006.

Such increases were likely to have affected the current account position, both directly (by increasing the demand for imports) and indirectly (by putting pressure on monetary policy and the exchange rate and making exporting harder).

In addition, the increased cost of regulations on the business sector and deficiencies in infrastructure were factors in the fall in international competitiveness to 22nd position in the latest IMD rankings.

“Ad hoc responses like KiwiSaver to perceived problems lying behind the current imbalances are misconceived”, Mr Kerr said. “The Treasury has advised that KiwiSaver is unlikely to increase overall savings, and it will add to government spending and the regulatory burden on businesses.

“We should stop wasting our energies on initiatives that won't make any real difference and focus on what actually matters – a coherent economic strategy to achieve balanced growth and raise living standards.

“A reappraisal of overall economic management is needed to deal with the problems of deteriorating trend growth, persistent inflation, rising unemployment and the current account deficit”, Mr Kerr concluded.

For more information, contact:

Roger Kerr
Executive Director
Ph: 04 499 0790
Email: rkerr@nzbr.org.nz

Web: www.nzbr.org.nz