Net national saving as a proportion of GDP has fluctuated a good deal during the past decade; between 1990-91 and 2000-01 the ratio rose from 2% to around 3%. But the longer term trend during much of the past forty years has been downward.(SEE FOOTNOTE 1)

Income that is saved rather than being spent on current consumption can be used to accumulate assets (wealth) that will generate future income and support future consumption. In particular, saving is one means of funding investment (the formation of fixed capital used in the production of goods and services).

During the past decade, there was a 0.8 percentage point rise in the ratio of net national saving to GDP (from 2% to 2.8%). But the longer term trend has been downward; between 1960-61 and 2000-01 the ratio fell overall from around 10% to around 3%. Similar downward trends in national saving have been observed in some other countries, such as the United States of America and the United Kingdom.

There is an important distinction between gross and net national saving (see box). The ratio of depreciation to gross saving has risen during the past forty years - from an average of around 64% in the 1960s to around 88% during the 1990s. This means that proportionately less of Australia's saving has been devoted to increasing the national stock of fixed capital and more to replacing the existing stock.

MEASURING NATIONAL SAVING Saving is not measured directly in the Australian national accounts. It is calculated as a residual item by deducting final consumption expenditure from disposable income. Because it is estimated as the (relatively small) difference between two large national aggregates, saving is subject to any measurement error in or revisions to either aggregate. Two concepts of national saving are used - gross and net. Gross saving represents the resources available for investment (capital formation) including replacement of fixed capital. Net saving is derived from gross saving by subtracting depreciation (consumption of fixed capital). NATIONAL SAVING AND NATIONAL WEALTH The commentary National wealth introduces the concept of net worth (assets less liabilities). National and sectoral net worth provides an alternative, and in some ways preferable, perspective on how Australia's future income-generating potential is changing. Net worth takes account not just of saving out of current income, but also of increases in national assets owing to changes in volumes (such as the discovery of mineral deposits) and prices (such as capital gains).

SOME DIFFERENCES WITHIN AUSTRALIA

Net national saving can be dissected to show the trends in saving by the various sectors - households, general government and corporations.

Over the longer term (from the 1960s onward), the household sector has been the main contributor to national saving. During the 1990s, however, the net saving of the household sector has fallen relative to GDP.

The general government sector went from being a net saver during the 1960s to a net dissaver during the 1970s, 1980s and early 1990s. During the 1990s, however, government dissaving was progressively reduced; between 1997-98 and 2000-01 the government sector again became a net saver.

For the corporate sector (financial and non-financial corporations) there have been considerable fluctuations in saving since the 1960s. For much of the 1990s, however, the corporate sector has been a net saver - possibly reflecting an increasing tendency for corporate profits to be retained rather than distributed to households in the form of dividends.


FACTORS INFLUENCING CHANGE

National and sectoral saving may be affected by both cyclical and behavioural influences.

For example, the economic cycle has a significant influence on government saving (as outlays tend to rise and receipts tend to fall during an economic downturn). In Australia, the government sector experienced a period of dissaving following the recession in 1991. The rise in government saving in the late 1990s in part reflected sustained economic growth and fiscal consolidation. The possible changes to the corporate sector's distribution of profits in the form of dividends during the 1990s are referred to above.

Changes in rates of inflation can also affect saving rates. A certain amount of saving is required to 'protect' the real value of assets which would otherwise fall due to inflation. In periods of lower inflation - such as the 1990s - less saving might need to be set aside for this purpose.


LINKS TO OTHER DIMENSIONS OF PROGRESS

The links between national income, consumption, saving, capital formation and wealth are discussed in accompanying commentaries.


FOOTNOTES

1 All data in this commentary are derived from Australian Bureau of Statistics 2001, Australian System of National Accounts 2000-01, Cat. no. 5204.0, ABS, Canberra.

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