Savings growth means no sacred cows

Federated Farmers has told the Savings Working Group that solving New Zealand’s savings and investment problem will not come from slavishly following Australia.  Instead, it needs a root and branch examination of Government spending and tax policy, as well as welfare, savings and capital markets reform.

“We need to look much deeper at what is both a savings and an investment problem, instead of just copying Australia,” says Philip York, Federated Farmers economics and commerce spokesperson.

“Australia’s success is not just down to compulsory superannuation but more to do with minerals and progressive economic reform.  Iceland, let’s face it, has compulsory superannuation and had one of the world’s highest savings rates, yet it was completely done over by the global economic meltdown.

“So superannuation is one tool but it’s no panacea. That’s why we’re highly critical of the Working Group’s restrictive terms of reference.   Federated Farmers believes Government spending and tax policy, as well as welfare and capital markets reform, should also be in the mix.

“Australia, for the past 25 years under both Labor and the Coalition, has pushed forward a coherent programme of economic reform.  New Zealand after a mad-dash run in the mid 1980’s and early 1990’s, has effectively been on a tea-break since 1996. 

“Australia proves that coherent economic reform when combined with commodities the world needs is a recipe for success.  We prove that you can have one, in our case commodities, but you definitely need the other.

“But if you wonder why we have a savings and an investment problem, a near doubling of Government expenditure over the past decade needs to be redressed. 

“Government is like a huge fiscal hoover and is today consuming 44 percent of the economy, eight percent more than 2000.  When you translate that into 2010 dollars, it’s an amazing $30 billion more per year in real terms, than what Government was spending back in 2000.

“Unless we focus on Government spending and tax policy as well as the quality of private and public investment, we’re not going anywhere, anytime fast.

“Market capitalisation in New Zealand has stalled while in Australia it has surged forward.  Savings and investment are very much flipsides of the same coin.  We’ve also seen $6.8 billion destroyed or locked up in finance company failures or moratoria, let alone the long hangover from the 1987 sharemarket crash.

“This has seen bricks and mortar embraced with gusto and agriculture has been guilty of the same exuberance.

“The difference is that agriculture is trade exposed, farm sales are flat and land prices have fallen back.  Farmers are focused on retiring debt, whereas many New Zealanders have been insulated by Government spending to take the ‘rough edges’ off the recession. 

“Given the need to boost savings and productive investment there should be no sacred cows when it comes to policy initiatives,” Mr York concluded.