Encouraging Signs

Not Yet Living Within Our Means, But Progress Nonetheless

And now, a good news story.  One of the things that has bedevilled the New Zealand economy for decades is the dearth of capital.  As a nation which has practised "socialism without doctrines", as historian Michael Bassett put it, we have not saved, nor valued, nor husbanded sufficient capital.  Why save, when the state taxes and distributes, with the goal of creating cradle to the grave security? 

Consequently, the Balance of Payments has run at a deficit for a long, long time.  This econometric statistic measures whether NZ Inc is trading at a surplus or deficit, whether as a nation it is making more than it spends, or whether it is relying upon others outside New Zealand to fund our lifestyles in aggregate.  The perpetual deficit is a record of our having become accustomed to living standards way beyond our national means. 

Gradually this situation is changing.
  New Zealanders are starting to save.  In particular, they are investing not just in New Zealand, but offshore.  In the long run this has to be a very good thing. In recent decades, particularly since the deregulation of the economy in the nineteen eighties, New Zealand institutions and the government has borrowed offshore to fund deficits and compensate for the lack of available domestic savings.  Whilst initially getting us out of a hole, it has had a long term perverse effect.  Our Balance of Payments has become more and more difficult to keep in surplus due to the cost of servicing offshore borrowing and investment in New Zealand.  Funds remitted offshore every quarter in profits or interest payment made it harder and harder to live within our means. 

Now, however, the Balance of Payments (still in deficit) is starting to take a different shape.  According to the NZ Herald

New Zealand's investments overseas increased by about $5 billion over the past year, while the amount of money flowing into the country also lifted.  Statistics New Zealand released data today showing New Zealand had money invested in about 100 different countries as at the end of March this year.  Those investments amounted to $163.9 billion, up from $158.4 billion in the year to March 31, 2012.

In the long term this has to be a good thing--provided, of course, our offshore investments are sound rather than speculative--which appears to be the case.

Some examples of offshore investment include Kiwis buying shares on foreign stock exchanges and Kiwi companies setting up overseas subsidiaries.  Of New Zealand's total investment abroad, 64 per cent was into five countries - Australia, US, UK, Japan, and the Netherlands.

Australia held its position as New Zealand's biggest trading partner, with investment there rising by $2.5 billion to reach $48.2 billion at March 2013.

The returns from these overseas investments will help reduce our Balance of Payments deficit and eventually (hopefully) bring it into surplus--not just occasionally, but structurally.  There is a long way to go.  International investment in New Zealand is presently twice the amount we have invested offshore.  Eventually this needs to be reversed.  There are many things which could derail this advance.  But we will take this small victory and press on, hopefully to even bigger and better things. It will be good for our grandchildren and our great grandchildren.