25 Nov 2010

Bollard urges more savings

9:03 pm on 25 November 2010

Reserve Bank Governor Alan Bollard says increasing national savings would boost economic growth and reduce New Zealand's vulnerability to global financial shocks.

In a submission to the Savings Working Group, Dr Bollard said more savings would reduce interest rates, take the pressure off the New Zealand dollar and promote growth across the export and domestic sectors.

Dr Bollard believes that improving the country's historically poor level of national savings would also reduce the country's exposure to external shocks such as the global financial crisis.

New Zealand's high level of external debt was one of the main factors leading ratings agency Standard & Poor's to warn this week that the country's foreign currency rating could be cut.

The Government expects to return to surplus by 2016, but Dr Bollard said speeding that up would be one of the most important measures to improve the level of savings.

He suggested the Government should also think about moving towards a Nordic-type tax system where income on capital is taxed at a lower rate than labour income.

Dr Bollard said savings would also be enhanced by linking the tax on interest to inflation.