New Papers on Saving Rates, Social Expenditure Projections

6 March 2013

New Papers on Saving Rates, Social Expenditure Projections

Two Treasury Working Papers published today find that saving rates in New Zealand are significantly higher than shown by standard measures of saving, and social expenditure projections are subject to considerable uncertainty.

Measuring Saving Rates in New Zealand: An Update was written by Emma Gorman, Grant M Scobie and Yongjoon Paek. This paper documents the standard measures of saving from the national accounts. In the case of the household sector it contrasts these with estimates of saving rates derived from changes in the stock of household wealth. It also presents a series of adjustments to savings rates to reflect the impact of inflation, to reflect the boundary between consumption and investment, to consider the role of the hidden economy, and assess the impact of the New Zealand Superannuation Fund (NZSF) for household and national savings.

This study finds that when the flow measures of both household and national saving rates are adjusted for spending which may more appropriately be defined as investment and the impact of inflation, estimated saving rates are significantly increased. The unadjusted rate for household saving was -4.1% of household disposable income between 1996 and 2011; for the same period the net national saving rate was 2.8% of GDP. After incorporating the adjustments the estimated saving rates were 0.3% and 11.8% respectively. On average the stock measure of savings is some 2.1 percentage points of household disposable income higher between 2002 and 2011, when allowance is made for the net wealth accumulated in the NZSF.

Social Expenditure in New Zealand: Stochastic Projections was written by John Creedy and Kathleen Makale. This paper presents projections for 13 categories of social spending in New Zealand over the period 2011-2061. The projections are based on detailed demographic estimates covering fertility, migration and mortality disaggregated by single year of age and gender.

The projections reveal considerable uncertainty regarding the ratio of total social expenditure to GDP as the time period increases. Much of this is due to uncertainty regarding future unemployment and labour force participation rates, and the rate of productivity growth. More optimistic assumptions regarding labour force participation and health costs among the aged produced lower average ratios of social expenditure to GDP. A consistent finding was the tendency for the average expenditure ratio to fall slightly beyond around 2040, following the death of post World War Two baby boom generations.

The views, opinions, findings, and conclusions or recommendations expressed in Treasury Working Papers are strictly those of the authors and do necessarily reflect the views of the Treasury.

ENDS

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