The latest managed funds statistics, which were released this week, show that Australians and New Zealanders are continuing to march to a different beat as far as savings are concerned.

While our Tasman neighbours are building a huge savings pool we are borrowing more and more money to invest in residential housing. Much of this is borrowed from offshore through the four major trading banks.

New Zealanders continue to shun managed funds for mortgage debt

The latest figures show that Australian managed funds grew by a further A$168.7 billion or 14.1% in 2007 while funds under management in New Zealand increased by a paltry $0.3 billion or 0.5% over the same period.  Meanwhile total household mortgage debt rose by A$76.2 billion or 12.2% in Australia compared with $17.5 billion or 12.8% in this country.

Australians have far more managed funds than mortgage debt while it is the other way around in this country. The per capita figures are as follows:
- Australians have A$64,230 of managed funds on a per capita basis compared with only $15,650 in New Zealand 
- Per capita mortgage debt is A$34,670 in Australia compared with $36,280 in this country.

The latest figures show that New Zealanders continue to place far too much emphasis on residential property as a source of savings compared with financial assets. This approach has contributed to the residential property bubble and has starved the productive sector of equity capital.

KiwiSaver will give a major boost to savings and the managed funds sector but it will take years before these funds will make a meaningful contribution to the productive sector. Further incentives may be needed to encourage savings and the huge tax advantages relating to residential property need to be substantially reduced.

The New Zealand economy will continue to drop down the OECD ladder as long as the country’s preferred investment option is residential housing funded by offshore borrowings.
      
Brian Gaynor, 29 February 2008