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Savings Working Group comments unsubstantiated, economist

Thursday 13th January 2011

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The Savings Working Group's interim report makes broad unsubstantiated comments that should be removed from the final report, according to a submission from an economist.

The group was established by the Government to stimulate public discussion on national savings and to help the Government develop medium-term savings strategies.

An interim report by the group released before Christmas said that New Zealand had a choice between taking a unpleasant but effective medicine now, or rejecting the medicine and taking the risk of a life-threatening surgery in the future.

In a submission, economist Leigh Harkness said these kinds of broad unsubstantiated comments should be removed from the final report.

"It clouds the issue and reflects political motives, playing the man rather than the ball," Harkness said.

"The economy is not a god to which we must make sacrifices before it will bring prosperity to the land."

In an earlier submission Harkness wrote about his experience of managing the balance of payments in the small economy of Tonga. In 1980 he worked for the Ministry of Finance of the Kingdom of Tonga as an economist.

He said New Zealand has suffered similar problems to other countries that have floated their exchange rates. These included slow rates of economic growth, high rates of unemployment, low real wages growth and rising foreign debt.

He advocates controlling bank lending so it is related to national savings.

"Now is the time for the Reserve Bank to take the lead in reducing the debt and restoring prosperity to the economy. Solving the current account deficit problem is an opportunity for the Reserve Bank, not a threat," Harkness said.

To attribute the current account deficit to the fiscal deficit, or to saving in the household sector, undersells the importance of monetary policy.

New Zealand's economic problems were shared by other countries that have implemented similar economic policies.

"The road to prosperity is via hard work and increased productivity. That will come when the money flows to businesses and people in a manner that is sustainable," Harkness said.



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