KEY POINTS:
The everyday decisions of eager borrowers, heedless consumers and reluctant savers have implications not just for them but for the economy as a whole.
Over the next 12 months about 250,000 fixed-rate mortgages mature and the news for those borrowers is likely to be all bad.
On average they are paying 7.8 per cent now. But these days it is hard to find a home loan below 9 per cent.
This impending rise in the average mortgage rate is part of the looming hangover from a long, debt-fuelled spending binge.
The spending spree has put upward pressure on prices and Reserve Bank Governor Alan Bollard has to combat that inflation with the only weapon he has - interest rates.
Debt also underpins the sky-high exchange rate. People in this country collectively borrow more - a lot more - than other people are prepared to lend and the gap has to be met by importing foreigners' savings.
But those Japanese yen, euros and US dollars must first be converted to New Zealand dollars. It is one of the factors that has pushed the exchange rate to 22-year highs, burning off jobs in the export sector.
The cumulative legacy of decades of running current account deficits - that is, spending more than we earn in our international dealings - is that New Zealand is a net debtor to the rest of world to the tune of $143 billion or $34,800 for every man, woman and child.
It is one of the highest rates of international indebtedness per capita in the developed world. Only Iceland and Hungary are worse, and not by much.
The cost of servicing the debt last year was $12 billion, or 7.5 per cent of the value of all the goods and services produced in the country over the year. In other words it takes the equivalent of the economy's entire output every February to service its international liabilities.
We have, in short, a national savings problem.
National savings is what is left over from the country's income or production after allowing for what we consume, depreciation of capital assets and servicing our international liabilities. It is what we have left for investment.
In the year to March 2006, the latest year for which we have a full set of national accounts, national savings was only $2 billion, down from $5.5 billion the year before and $7.2 billion the year before that.
It means that of the net national investment of $17 billion, $2 billion was financed by national savings and $15 billion by imported savings.
It is an advantage to be an open economy in good standing and so to have access to foreign capital. Growth would be pretty stunted without it.
But the returns on that investment flow to the foreign savers and investors who put up the money.
National savings are the combined savings of households, the Government and the business sector.
The household sector is responsible for the dismal national savings record.
So will the KiwiSaver scheme turn around our low and declining national savings rate?
Auckland University economist Susan St John doesn't think it will make much difference.
To the extent that the money accumulating in KiwiSaver accounts is tax credits or employer subsidies, it will be offset - all else being equal - by reduced Government and business sector saving.
And the impact on household savings will depend on how much of the money people put into their KiwiSaver accounts is offset by reduced saving in other less tax-advantaged forms, or by increased debt.
In Australia, its Reserve Bank estimated that between 35c and 50c in the dollar going into compulsory superannuation was offset by people reducing other saving or increasing their borrowing.
The ability to switch savings vehicles to capture the subsidy on offer will be greater among people on higher incomes, who are more likely to be saving already.
Because KiwiSaver is voluntary it is likely to include fewer people on low incomes than Australia's compulsory scheme. That suggests the proportion of KiwiSaver contributions that are offset by reduced saving in other forms will be higher than in Australia.
"Because of the extent of the subsidisation some people who would otherwise be well advised to repay debt will retain their debt and put money into KiwiSaver instead. They will effectively be borrowing to go into KiwiSaver," Dr St John said.
"I don't see anything in the policy which will reduce people's willingness to go into debt. You might have your KiwiSaver money building up, feel wealthier and it doesn't affect your willingness to cut back on your lifestyle at all."
If excessive household spending is swelling the current account deficit, Dr St John is unconvinced KiwiSaver will do much good on that front either.
"There's a whole bunch of babyboomers not far off retirement. They will get into KiwiSaver and arrive at retirement with all that extra spending power they did not expect to have. How can that be good for the current account deficit?"
Dr St John also sees it as posing a threat to universal entitlement to NZ Superannuation down the track.
"You can't have in 20 years' time wealthy people arriving at 65 with hugely tax-subsidised private saving as well as getting a universal handout that is more than the unemployment benefit."
