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Salient: Victoria University Students' Paper. Vol. 27, No. 15. 1964.

The Need for Saving in New Zealand

page 10

The Need for Saving in New Zealand

In 1962-63 private savings in New Zealand amounted to £144 million out of a total net national income of £1240 million. Small savings alone amounted to over £28 million. However, in the same period net internal investment ran at a level of £232 million. Part of the gap between private savings and the level of investment attained was met by Government and Local Body revenue surpluses, but there remained a gap of over £20 million which had to be met by overseas borrowing, private and Government.

This illustrates something of a series of basic economic problems which confront New Zealand, and which are all tied up with the problem of inadequate domestic savings. These are:
1.An inadequate rate of economic growth, partly caused by inadequate capital investment.
2.The inability of New Zealand to finance even its current level of investment from internal sources, leading to a dangerous reliance on heavy overseas borrowing.
3.A continuous price inflation, due largely to excessive internal spending.

For all of these problems there is one basic solution, more savings, either voluntarily by private individuals, or via the more drastic measures of Government tax increases which cut back consumer spending.

Returning though, to our diagnosis of several of New Zealand's basic economic problems.

1. When we say that New Zealand's rate of investment is inadequate, it should be remembered that the proportion of New Zealand's gross national product going into investment is quite reasonable by world standards, though not comparable with that achieved by the most rapidly growing economies. Gross investment was over 22 per cent of GNP in 1962-3. and net investment (after depreciation) approximately 15 per cent. However, New Zealand is faced with a situation in which it needs a very high rate of capital investment for the following reasons:
(a)Its population is growing quite rapidly, normally by more than 2 per cent per year. This means that a large amount of investment is needed just to keep pace with the population increase. If we assume a capital; output ratio of 4 to 1, a population increase of 2 per cent per year requires an investment of 8 per cent of the national income just to keep living standards from falling.
(b)As a highly developed welfare state, New Zealand puts a large amount of its investment into social capital such as housing and hospitals. Which does not directly increase production.
(c)Because of its geographical endowment and relatively low population per square mile, New Zealand has to spend relatively heavily on transport facilities and social utilities.
(d)Output expansion in New Zealand calls for rather heavy capital inputs. Farm production is a relatively capital intensive form of production (at least under New Zealand conditions), while the alternative of manufacturing is in many cases inefficient, and requires more capital per unit of output than is often the case overseas.

2. New Zealand's heavy reliance on overseas capital has come into public prominence with the recent spate of takeover bids, and growing criticism of Government overseas borrowing. One aspect of this problem that is commonly overlooked is that overseas capital has become necessary simply because New Zealanders are not willing to save enough to finance their own internal investment. The problem of dependence on overseas capital can only be solved by either increased saving or (less pleasantly) by increased taxes which will give Government enough revenue to pay for its own capital projects while leaving private savings to pay for private investment.

3. New Zealand's ever-present problem of inflation also stems from too high a level of internal spending, or to put it another way inadequate saving. Part of the real (and not just monetary) gap between Saving and Investment in New Zealand has been met by "forced saving," the kind of "saving" that takes place when rising prices rob people of purchasing power. To stop a price rise of 2 per cent per year would require increased savings (or increased taxes) of about £20-£25 millions. If New Zealand does neither then inflation will continue.