1. PAUL GOLDSMITH (National) to the Minister of Finance: What reports has he received on progress in lifting New Zealand’s household savings and reducing household debt?

Hon BILL ENGLISH (Minister of Finance) : The latest available data comes from the year to March 2011, and shows that net household savings in that year were 0.2 percent of disposable income. Although this is modest, it is the first annual positive savings rate since 2000, and only the second since 1993. Treasury forecasts an increase in the household savings rate from 0.2 percent of household disposable income to 3.9 percent by 2016. This higher savings rate and the reduction in household debt are expected to be helped by continued restraint on consumer spending, which of course is not such good news for the retail sector.

Paul Goldsmith: What impact has the recent increase in household savings had on household debt?

Hon BILL ENGLISH: Household debt did grow quickly through the mid-2000s. However, since then the growth has slowed and started to turn down, helped along by New Zealanders being careful with their money. As a result, household debt as a percentage of disposable income has fallen from 155 percent of disposable income in 2009 to 140 percent today. So that is quite a significant reduction. The level of household debt, however, is still high, and I would expect that New Zealand households will continue to pay down their debt.

Paul Goldsmith: Given the improvement in household savings and the fall in household debt, what factors are behind forecasts for the current account deficit over the next few years?

Hon BILL ENGLISH: The current account deficit is forecast to go out to 6.7 percent of GDP by March 2016. This is still significantly less than its peak at 8.7 percent of GDP in 2006. The forecast widening of the deficit will reflect a couple of factors. One is the Christchurch rebuild, which is being part-financed from overseas insurance inflows. Statistics New Zealand estimates $15.7 billion of reinsurance for Christchurch. A second driver of it will be increasing business investment—that is, where people are financing investment in their own businesses, which will generate future income.

Andrew Williams: Has the Government any plans to ensure more household saving is invested in New Zealand - owned financial institutions, rather than in foreign-owned banks; if not, why not?

Hon BILL ENGLISH: There is a bit of a trade-off in this respect, where large investors such as the New Zealand Superannuation Fund and ACC have investment policies that include diversification of their holdings. Both of those funds are so large that they have probably invested almost as much as they can in the New Zealand stock market, though they do invest a considerable amount of their funds offshore, as a rational investor probably would.