Bank moots loan limits

Press, 31 August 1989, Page 1

Bank moots loan limits

By

PATTRICK SMELLIE

in Wellington

Strict limitations on how much New Zealanders could borrow are suggested by the National Bank as a way to improve the country’s rate of growth. “This form of policy could create the ‘cold shower’ shock required to lift New Zealand on to a significantly higher growth path,” the bank said in its August “Business Outlook,” released yesterday. A bank economist cited the example of some Asian countries, where people buying houses had to have deposits of as much as 80 per cent of their value. This compares with a norm in New Zealand of 20 to 25 per cent. In South Korea, where this policy applies, repayment of a .mortgage must also be made over three years. “A massive shift away from household consumption is necessary to create the pool of finance required by New Zealand business,” the bank said. There were new investment opportunities created by economic restructuring in the last five years which were going begging because of the lack of investment funds.

By tapping that potential, New Zealand could double its mediocre predicted rate of economic growth. “The New Zealand economy will gradually" nnove towards moderate economic growth, mediocre by international standards, but reasonably good by our own historical standards,” the bank said.

To change this would require a significant improvement in the savings habits of ordinary New Zealanders. While New Zealand’s total savings were in line with comparable countries, personal savings rates were consistently below average. Neither existing local savings nor the prospect of new offshore investment could produce the “massive and speedy” injection of new investment funds required to change our economic fortunes drastically. The higher risks associated with new ventures meant local funds were not available in sufficient quantity or at low enough interest rates.

An economist with the Infometrics consulting group, Dr Gareth Morgan, said New Zealanders had little incentive to save, compared with Asian countries. Asian countries had among the highest savings rates in the world. This was based on a combination of tight credit controls, tax breaks for interest income, and in some cases high prices for basic products which produced high profits for reinvestment by industry. They also had minimal welfare States by comparison with New Zealand, meaning people saved for reasons of personal security and fear. “It’s as cruel as helL but it works,” Dr Morgan said, “and these countries are becoming our main competitors.”