KEY POINTS:
The conviction that New Zealanders do not save enough and are heading for a financially strapped old age has underpinned a lot of Government policy over the past eight years.
Paying down Crown debt, setting up the New Zealand Superannuation Fund, assorted changes to the tax laws and
the establishment of KiwiSaver are all founded in the belief that these are, as Michael Cullen puts it, the "golden years" demographically, but that left to their own devices the swollen cohort of babyboomers will not make enough provision for their retirement, leaving an intolerable burden for the next generation.
But there are those who challenge the idea that New Zealand has a household saving crisis, most recently Trinh Le at the New Zealand Institute of Economic Research.
This more sanguine view rests on four pillars:
* The statistics which show households collectively spend more, considerably more, than they earn are dodgy. Other data sources paint a more reassuring picture.
* For the economy as a whole, what matters is national savings, which includes the Government and business sectors as well as the household sector. National saving rates are positive and not showing any deteriorating trend.
* While it is true that our chronically large current account deficits show that national savings fall well short of what is needed to fund investment within the New Zealand economy, that is not a problem so long as we can access foreign savings. It is the quality of the investment that matters - not least for the economy's future ability to deliver a decent standard of living to its superannuitants.
* Policies which tilt people's choices towards future rather than current consumption come at a cost.
One way of calculating household saving rates is to add up households' combined income and spending and subtract the latter from the former.
Statistics New Zealand's household income and outlay account attempts this and finds that in the year to March 2006, the most recent set of national accounts available, households spent $1.14 for every $1 of income, up from $1.11 in 2005 and just $1.02 in 1996.
The problem with this approach is that any errors in measuring income or spending accumulate in the difference between them.
They have only just started including income in family trusts and as Trinh Le points out, they still do not include income from overseas assets held directly (rather than through managed funds, say) or from the black economy.
Statistics NZ warns that the data are "experimental" as they may be catching income or spending that more properly belong in the business sector account, which it does not separately compile.
An alternative, bottom-up measure is based on the household economic surveys Statistics NZ conducts every three years.
This measure shows positive savings rates, especially if spending on health, education and consumer durables is treated as investment rather than consumption. But like any survey-based measure it is subject to sampling error and Statistics NZ also warns that it appears to be significantly under-estimating total household spending.
Another way of estimating saving rates is to look at how much households' net wealth increases from one year to another.
The Reserve Bank does this and, unsurprisingly given the housing boom, it shows strong increases over recent years.
But if you take out the effect of house price rises, in order to get a handle on the impact of "active" saving, the saving rate is negative and deteriorating, though not nearly as much as the household income and outlay account indicates.
This measure also has its limitations, however. It does not include directly held overseas assets or, crucially, allow for the fact that some "household" assets and debt belong to unincorporated businesses.
In any case it is debatable whether house price gains should be excluded, especially with the emergence of reverse mortgage products which allow retired homeowners to withdraw equity from their homes while continuing to live in them.
Even so, says Shareholders Association chairman Bruce Sheppard, there are limits to the ability to "eat your house".
And rising house prices give rise to a wealth effect where homeowners are willing to borrow and spend some of the paper increase in their housing equity, between 5c and 7c in the dollar by one estimate.
The unsatisfactory bottom line is that while there are deficiencies in the official statistics which depict a spendthrift household sector, there are problems with alternative, more encouraging measures too.
Trinh Le argues that in any case it is more relevant to look at national savings rates, which capture government and business sectors as well.
The people best able to save don't see much point in saving in ways captured by the household account, especially with the gap - which widens to 9 percentage points next April - between the top personal tax rate and the company rate.
"Since households are the ultimate owners of national savings, negative saving in the household sector alone is not a real problem."
Unfortunately in New Zealand's case many of these households are overseas: a large part of the business sector, at least at the big end of town, is foreign-owned.
Over the past 20 years national savings rates have been in positive territory except for a couple of years in the early 1990s.
The average rate has been 3.1 per cent of GDP.
But that has only been enough to cover 40 per cent of domestic investment. (Investment in this context is fixed capital formation - in assets such as plant, machinery and buildings, net of depreciation).
The other other 60 per cent has had to be funded by imported savings, reflected in the current account deficit which hit $13.6 billion in the year ended June.
Reserve Bank Governor Alan Bollard and Treasury Secretary John Whitehead are among those who warn that deficits of this magnitude are not sustainable.
Trinh Le, however, says that whether investment is funded by borrowing or saving does not matter.
"The crucial question is how wisely invested the funds are," she said. "If New Zealand has difficulty sustaining foreign debt it is because it has a growth problem, not a saving shortage."
It is like a student loan. It can be a smart investment, provided you use it to study the right discipline.
Japan shows that saving is one of those good things you can have too much of.
Despite a high rate of household saving its growth has been sluggish because savings have been squandered on poor investment, while household spending has been weak as a result of high saving.
Instead of driving the country to despair over statistical aberrations and adopting distortionary policies to promote saving, politicians should invest in policies that deliver growth, she says.
But it would be good, would it not, if more of the fruits of that growth stuck to our ribs.
And that means relying rather less on foreign savers to fund it.
