5 April 2005

Cullen on NZ Institute report

The government agrees it is important to raise savings, but Institute's plan too expensive.

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Finance Minister Michael Cullen today welcomed the final instalment in the New Zealand Institute's discussion on creating an ownership society, saying it was a useful contribution to the policy debate and that the government concurred with the Insititute's broad analysis.

"We agree on the need to both broaden and deepen the range of assets held by New Zealanders and to lift household savings rates as these are now among the lowest in the OECD and are part of the explanation behind New Zealand's stubbornly high external deficit.

"We also agree with the Institute that tax cuts which would further fuel consumption would be counterproductive given the current state of the economy as they would add to inflationary pressures, cause a worsening of the current account and lead to higher interest rates," Dr Cullen said.

"Both the Prime Minister and I have already signalled that this year's budget will contain measures to help people to save for their retirement and to assist them in buying their first home.

"The government's proposed savings scheme reflects the three principles advocated by the Institute in that it is designed to encourage maximum participation, to be responsive to changing life circumstances and to create a savings culture," Dr Cullen said.

He warned, however, that the package would be significantly more modest than that the $4 billion a year the Institute was recommending.

"Such a level of support would be totally unaffordable and would lead to the government moving from being a net saver to a net borrower, which would undermine the whole purpose of the exercise," Dr Cullen said.

ENDS

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