DFC sees savings improvement

Press, 8 March 1989, Page 41

DFC sees savings improvement

PA Wellington New Zealanders’ financial insecurity could help alleviate the country’s high external debt through improved domstic savings, according to DFC New Zealand, Ltd, economist, Mr Roger Garrett. Continuing political instability and employment fears could improve household saving levels and reduce the need for the Government to borrow overseas, he said in the company’s fortnightly bulletin. New Zealand had a poor record in net national savings, he said. Low savings resulted in a dependence on foreign capital to finance Government deficits and domestic investment. Continued Government deficits had drained national savings, reducing the funds available for domestic investment.

Funds were borrowed overseas and as external debt levels rose so did the cost of funds. Households uncertain about their future finances were likely to spend less and save more. Concern over issues affecting - income such as increases in marginal tax rates and GST would also contribute to increased savings. And while credit had become more accessible to New Zealand consumers, willingness to assume debt at previous levels had declined.

The preconditions for improved net savings existed. High real interest rates, low consumption growth, and a decrease in the Government deficit would hasten the process, as would New Zealand’s continued balance of payments situation.

Possible impediments

included tax increases, inaction on national superannuation, and the proposed introduction of a domestic interest withholding tax. Increased savings would, in the medium term, offer relief from high real interest rates by increasing the pool of funds available for investment.

“A decline in real interest rates emanating from increased investment, together with increased political and economic certainty (improving fundamentals), would improve the outlook for long-range planning,” Mr Garrett said.