|Issue No 40||19 November 1999|
Superman on National Savings
By Mark Lennon
- Labor Council executive officer
Aside from the obvious role that superannuation has to play in forming a fundamental part of Australia's retirement incomes policy, there is a secondary role being the positive impact that the increasing level of superannuation savings has on national savings.
National savings are the financial resources that a country has available for investment in areas such as infrastructure, capital equipment, and venture projects. It includes both private sector and public sector savings. Public sector savings come in the form of Government budget surpluses. Private sector savings are those held by companies and us, the general public, in bank accounts and the like.
The importance of having a high level of national saving is one of economic sovereignty. If there are insufficient levels of saving within our borders then companies have to look overseas for investment funds. Whilst this is a normal practice, all nations borrow overseas, it is the level of foreign investment that is the cause for concern. Having high levels of foreign debt leaves our economy vulnerable during times of economic downturn. It also means that as our level of foreign debt increases foreign lenders will be asking us to pay higher interest rates as they consider Australia an increasing risk.
Certainly Australia's record in the area of national savings has not been great. We have tended to have high levels of foreign debt. In the public sector Governments have sought in recent times to address this problem by moving budgets into surplus. (Though at the cost of decent public services, it is argued.) At the micro level, however the trend has been in the opposite direction with us now having one of the lowest household savings rates in the OECD. Our rate of household savings has dropped from 11% of household income in the 1970s to under 2% now.
Improving the level of household superannuation savings therefore is important if we are to lift the level of national savings thus providing a larger domestic source of investment funds.
Certainly the introduction of the Superannuation Savings Guarantee has achieved the goal of lifting the level of household savings held in superannuation. Superannuation now makes up some 20% of households savings, second only to the family home. However, it remains to be seen if there has been an increase in net household saving . It may be that superannuation has simply replaced other forms of household saving.
Despite this, the fact that their is now some $380 billion invested in superannuation funds in Australia would indicate that when it comes to national savings we appear to be heading in the right direction, but it is a topic that should be revisited next year.
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Last Modified: 15 Nov 2005