GNP sends savings to 37-year low

By Brian Fallow

WELLINGTON - New Zealand's economic cake shrank in the year to March and the portion of it which was ours to consume shrank even more, according to the national accounts released yesterday.

While gross domestic product fell 0.2 per cent, gross national product (or gross national disposable income as Statistics New Zealand prefers to call it) fell 0.6 per cent.

The difference reflects the fact that while GDP fell, the net outflow of interest and dividends to foreign investors increased 12 per cent to $7.6 billion.

GNP excludes dividends and interest remitted to overseas investors (and similar, but much smaller, income earned by New Zealanders from overseas investment).

Bryan Philpott, emeritus professor of economics at Victoria University, said that since 1984, while per capita GDP had grown at about 0.6 per cent a year, per capita GNP had only grown at the deplorably low rate of 0.2 per cent a year.

GNP is a measure of the income available for New Zealanders to either spend or save. Last year, by and large, we spent it.

National savings fell to 2.6 per cent of GNP, the lowest that ratio has been since the statistics began in 1962.

The two major components of national income increased only slightly - employment income by 0.2 per cent and business profits by 1.2 per cent.

But household spending increased 3.4 per cent, with an increase in spending on durables like furniture appliances and cars.

The result was net dis-saving by households for the second successive year.

Government spending also increased, 2.5 per cent; the largest contributors to the increase were pay parity for primary teachers and extra spending to reduce surgery waiting lists.

Despite business profits increasing less than $400 million the net outflow of income to foreign investors increased $800 million or 12 per cent.

Investment fell, mainly reflected a 14 per cent drop in spending on housing. However that fall-off was largely confined to the first half of the year, Statistics New Zealand said.

Since October last year, when mortgage interest rates fell to their lowest level for 20 years investment in housing began to pick up. Investment in plant and machinery was flat.

Despite the drop in investment, we continued to rely on the savings of others to finance it: net borrowing from the rest of the world last year increased $1 billion to $6.5 billion or 6.6 per cent of GDP.