GFC teaches Kiwis a lesson in restraint but savings rates still below OECD average, according to lacklustre economic report card giving NZ Inc a C average

By Amanda Morrall

Amid an otherwise unflattering economic and social report card rating the quality of life in New Zealand a lowly 'C', Kiwis have shown a slight improvement in an area known to be a national weakness, savings.

According to the New Zealand Institute, which yesterday released its NZahead report, the gross national savings rate has gone from 15% of GDP in 2008, to 17% in 2009 and 2010. The figures were based on World Economic Forum data.

NZI director Rick Boven said while the increase was positive, the savings rate still lagged behind the OECD average of 20%.

Boven attributed the improved savings record to debt reduction efforts and restrained spending brought on by the global financial crisis.

The savings story, while positive, was mooted among an otherwise depressing assessment of NZ Inc's ratings across 16 economic and social indicators.

The think tank said the country's stagnant but high suicide rate, poor labour productivity and a fall in net migration after the February earthquake were strong indicators that its "position has not improved on the world stage."

In the year to June 2011 almost 30,000 New Zealand citizens departed, double the number of departures in the previous year, NZI notes.

The only other brightener highlighted in the report was a reduction in carbon dioxide emissions, although the trend was attributed more to good weather conditions and a poor economy, rather than any substantive behavioural changes.

The savings situation was similarly bittersweet, said Boven.

In addition to trailing the OECD average Boven said household wealth in New Zealand remained heavily biased toward property and farming.

In it commentary, the Institute notes that 75% of household wealth is generally believed to be tied up in non-financial assets such as housing,. That compares to the unweighted average for the OECD of 50%. 

Boven said disparities in the way international data was collected, and also a lack of information about non-financial assets among Kiwis, put the figure somewhat in dispute. Investments in overseas assets, unincorporated businesses and unlisted incorporated businesses have so far been excluded from New Zealand surveys on household wealth and assets.

"We have not been able to find any definitive data on these components for New Zealand or international comparisons, so are unable to determine if the importance of the excluded components varies materially between New Zealand and other OECD countries," the NZI states in its report.

Boven said that while the savings debate in New Zealand was complicated by the lack of reliable data, imbalances in asset allocations that counted toward savings were obvious.

"There's two sides to the issue; how much we save and where we invest. Just ramping up housing prices isn't going to fix it....we have a view that we put a bit too much effort into ramping up house prices previously when what we need is to be putting more into productive assets.'' (Adrian Orr, CEO of New Zealand Superannuation elaborates in video below).

Boven said New Zealand's high debt position stemmed from owing the money borrowed to pay for houses which "we're now paying interest on" and the reduced expenditure that would normally be spent on consumer goods or else more productive assets.

For other category ratings in the NZahead report and explanations click here.

Adrian Orr - Household wealth from NZahead on Vimeo.