Savings increase could fight inflation and boost investment

Higher national savings by Australians can play a key role in both fighting inflation and boosting infrastructure investment in addition to improving retirement incomes, according to new research by the Investment and Financial Services Association(IFSA).

Entitled ‘The Economic Impact of Increased National Saving’, the research models the impact on the Australian economy of an increase in national savings equivalent to about 2 per cent of gross domestic product (GDP).

A key finding was that this level of increased savings allowed “individuals to enjoy a higher standard of living in retirement, improving intergenerational equity”.

Another key finding was that the savings moderated “consumption growth, lowering short-term interest rates by an estimated 0.9 per cent in 2010-11”.

This level of saving was also found to “reduce Australia’s reliance on foreign capital, with projected foreign liabilities at 15 per cent of GDP lower in the longer term”.

Most of the savings were found to “finance a significant reduction in the current account deficit, with the reduction peaking at 2.4 per cent of GDP in 2011-12”.

The remaining savings were found to “boost investment in the medium term, including potentially reducing bottlenecks in the key infrastructure industry of transport”.

Prepared by Econtech, the research paper represents the second stage of IFSA’s national savings research project and builds on earlier research conducted by Dr Vince Fitzgerald and the Allen Consulting Group.

Stage one of the research, entitled: ‘Australia’s National Savings Revisited: Where Do We Stand Now?’, found that household savings in Australia has fallen over the last decade, placing Australia 16th relative to other OECD nations in terms of savings rates in 2006.