“Savings vital to targets”

Press, Volume CXII, Issue 32861, 9 March 1972, Page 16

“Savings vital to targets”

(New Zealand Press Association)

WELLINGTON, March 8.

A rise in domestic savings would require effective action to restrain inflation, the independent Targets Advisory Group reported to the National Development Conference today.

“It will also require accelerated action to improve the efficiency of the financial sector and enable financial institutions to offer improved services to borrowers and higher interest rates to savers,” the report said. The scarcity of domestic resources to finance required investment levels had undermined economic expansion over the last two years. Both business and farm investment and social invest-

ment such as housing were falling behind longer-term requirements. Unless the trends of the last two years were reversed, neither the proposed new targets for economic growth nor even the past average growth rates would be achieved.

Investment and savings were lagging well behind the levels required to meet the suggested 4.5 per cent real gross national product growth targets, the report said.

Only in 1970-71 did investment almost reach the revised 1969 conference target of 26 per cent. This (25.6 per cent) had since fallen away to an estimated 23.1 per cent in 1971-72.

Even the 1970-71 achievement was possible only because overseas borrowing (3.8 per cent of G.NJ».) was much higher than originally assumed. BELOW PEAK

Domestic savings had also fallen well short of requirements.

On a basis of a level of overseas borrowing (including reinvested profits of overseas-owned enterprises) total savings would need to be 24 per cent of G.N.P. if target investment levels were to be financed. This had been achieved only once in the last five years and, for 1971-72, the Institute of Economic Research estimated that savings were only 22.1 per cent of G.N.P., well below the peak of 24.7 per cent achieved in 1969-70. This decrease in the proportion of savings had been generated partly by the shift in income distribution from high to low savings groups—from business and farm incomes to salary and wage incomes—and by inadequate incentives to save in the face of rapid inflation, the report said.