Savings policy is the missing economic instrument

Savings policy is the missing economic instrument says leading financial sector figure

Savings policy is the missing economic instrument for New Zealand according to Peter Neilson, Chief Executive of the Financial Services Council* and former Associate Minister of Finance.

“If we find it too difficult politically to address our general bias in favour of investing in land we will need to address the relative overtaxing of savings, particularly those invested in assets held long enough to earn compounding returns,” said Neilson in a presentation at the Financial Services Institute of Australasia (FINSIA)/ANZ luncheon in Wellington today.

Neilson made the comments in response to a speech by John McDermott, Assistant Governor and Head of Economics at the Reserve Bank of New Zealand, at the FINSIA event in which McDermott said that forecasting was the key to monetary policy.

“Despite thirty years of over investment in econometricians and with the continuing underinvestment in improving the statistics used for forecasting, our ability to pick turning points for the economy appears no better.

“Discretionary tools are almost always used too late and too little to work effectively and end up as destabilising interventions that make the peaks higher and the troughs lower.”

Neilson said that New Zealand needs more automatic stabilisers for both monetary and fiscal policy and called on the Reserve Bank to use its monetary policy to accommodate a lowering of the currency.

“Inflationary expectations are likely to remain low for the next few years until the real economy recovers. Once inflation expectations start rising again however, monetary policy will need to get back to its day job of being used to restrain inflation.

“In the meantime we need to get to work on improving the automatic stabilisers in fiscal and monetary policy and removing or reducing the tax and other biases against both saving and investment in assets that will increase our future incomes.”

Ends

*The views expressed in the above statement are the personal views of Mr Neilson and not necessarily those of the Financial Services Council.

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