Australian Government, 2012‑13 Budget

Statement 4: Building Resilience Through National Saving (Continued)

The benefits of higher saving

Households can maximise welfare by using part of their current income to fund increased future, rather than current, consumption; that is, by saving. This is achieved by investing in assets that raise future income and can be drawn on to finance consumption at a later date.

From a household perspective, saving serves three broad objectives:

  • allowing consumption to be smoothed over time;
  • increasing future consumption possibilities, including for future generations; and
  • improving resilience, by providing a buffer against unanticipated adverse events (precautionary saving).

Increasing saving can improve welfare by helping households better manage their consumption over time, including their exposure to risks.

Government policies that encourage saving normally reflect the objectives outlined above. This may require governments to correct for factors that can lead households to insufficiently provide for their retirement and other needs. In this regard Australia's superannuation system is important in improving retirement income adequacy and putting government finances on a sustainable long‑term footing. This contrasts starkly with many advanced countries which have failed to put such reforms in place.

Saving undertaken by governments can also help households to achieve these objectives. In particular, prudent fiscal policy focused on fiscal sustainability allows households to maintain stable incomes and assists the private sector in making sound saving and investment decisions by lowering uncertainty. Higher government saving creates a fiscal buffer for uncertain times and, by reducing demand, takes pressure off monetary policy.

Higher national saving has other macroeconomic implications. Higher saving can be expected to raise future national income over the medium‑to‑long term through some combination of two channels. Higher national saving may lead to higher investment, which underpins higher GDP. Alternatively, higher national saving results in higher investment income being retained in Australia or earned from overseas rather than being paid to foreign investors; that is, it helps reduce our reliance on foreign saving to drive the development of the economy.

An important example of this occurred during the global financial crisis (GFC) when Australia's superannuation savings provided a funding source which could be drawn on by both the financial and corporate sectors.

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