|
NEW BID TO BOOST SAVING By Lawrence JohnstonIN A bid to help plug the gap between domestic spending and the nation's exports, the government is going to introduce a new savings scheme. The measure comes amid concerns about how little of what New Zealanders earn is saved rather than spent. In a speech in Wellington last month, Finance Minister Michael Cullen said: "If we want the Reserve Bank to keep interest rates low for businesses and mortgages, we need households to spend less and save more." Called KiwiSaver and due to be introduced in July, the scheme is a workplace-based one for all workers. It will enable them to save four or eight per cent of their income. In his speech to a Deutsche Bank Investor Mission, Dr Cullen said the scheme's introduction could hardly be timelier. Only recently the Reserve Bank's warned about household dissaving and the need to manage domestic demand. Some 700,000 people start new jobs each year, and those who sign up will receive a kickstart NZ $1,000 contribution from the government. Dr Cullen said the incentives were strong for young people to join as they started out in the workforce. The younger a person started saving, the more benefits would multiply later in life. And by making employer contributions tax exempt, the government was making it even more attractive for workers to save. "KiwiSaver will help deepen the pool of capital available for development, manage domestic demand pressure and increase our household savings rate. "It should help to take pressure off our export sector and off interest rates," he said. Earlier, Dr Cullen said that in the last quarter of last year, the nation's GDP (gross domestic product) grew at around one per cent with demand being boosted by a number of factors. Confidence was high. Retail sales had been strong, dairy prices had increased and business confidence was the highest it had been in several years. Unemployment was at its lowest levels since the early eighties and "very low" levels by comparison with other developed countries. Wages had been growing and the number of hours worked had also been up so there was more cash in the hands of income earners. A strong factor had been buoyancy in the housing market. A Barfoot's survey in March had shown that 17 per cent of house sales last year were for more than a million dollars. The Treasury expected domestic demand to keep growing strongly at least through the early part of this year. That had created problems. Domestic demand pressures prompted the Reserve Bank to increase the Official Cash Rate in March. "As the Bank pointed out, there remains a real risk to our economy from the way our domestic and external sectors are out of step. "The domestic economy has been persistently much stronger than the export sector, and we're seeing the evidence in a current account deficit of nearly ten percent of GDP," Dr Cullen said. Besides the failure of households to save enough, the deficit was also due to the nation's failure to sell enough of the high value, knowledge and skill-based exports that New Zealand needed to reap the benefits of the global economy. One of the government's challenges was to find more effective tools to manage inflationary pressure. "When interest rates go up our export sector suffers much of the burden. The resulting higher exchange rate makes exports less competitive and businesses pay more for capital," he said, though adding that it was not the export sector that was providing inflationary pressure. The Reserve Bank Governor had mentioned that the Bank was looking at a range of other tools to help reduce inflationary pressure, rather than simply leaving the challenge to interest rates alone. The Official Cash Rate will always be the main weapon but the Governor had given examples that would target the rapid expansion in mortgage credit. That growth in "borrowing on the house" had amplified the increase in house prices and produced a wealth effect that had boosted domestic demand. Potential tools the Governor had mentioned included tightening tax rules on housing investment, and changes to bank capital requirements to help moderate the amplifying effect of credit on the housing cycle. Dr Cullen stressed that no formal proposals on any of this had been put yet and any policy option would need broad support. But it would help address the ongoing challenge of managing the domestic economy better without hammering exporters. And through fiscal policy, the government had an important role to play in supporting monetary policy. There was no point in trying to give tax cuts or to increase spending if the gains were simply taken away in higher mortgage costs or an inflationary spiral. "I need to point this out every time the government's cash surplus is updated because there are those who believe the government can simply spend its cash reserves," he said. The government was active on a range of fronts to take pressure off monetary policy, increase savings and develop the export sector. Cash surpluses had been used to pay down debt steadily. Gross debt was around 20 per cent of GDP and the country no longer carried any net debt, taking into account the New Zealand Superannuation Fund. The nation had better public finances than nearly all other OECD countries, he said. The NZ Superannuation Fund would ease pressure on the government's finances in the future. By setting aside some of the future cost of superannuation, New Zealand would be better placed to meet the cost pressures that lay ahead as more people retired. |
About Us | Our Publications | Shopping | Visa Enquiries | Information Days | Links | Advertising | Privacy Policy
© 2005 Consyl Publishing & Publicity Ltd.