Summary:

What would it take to manage inflation using the Superannuation Guarantee (SG); replacing or complementing the Reserve Bank of Australia’s (RBA) traditional tool of raising interest rates?

From what/where (Horizon 1):

Raising interest rates remains the RBA’s primary tool for combating inflation. The burden of interest rate hikes are borne largely by households with mortgages and renters, while wealthier Australians are spared. Demand driven inflations is reduced when disposable income is reduced via increased mortgage payments, and the money transfers to bank profits via higher interest charges.

To what/where (Horizon 3):

Po: In addition to the RBA’s use of interest rates to curb inflation, the Federal Government has a mechanism to divert a greater portion of employee wages in compulsory retirement savings (ie temporarily increase Superannuation Guarantee) in order to reduce consumer spending.

How to get there (Horizon 2’s):

Po: The Federal Government seeks a mandate and institutes through legislative change a mechanism through which to temporarily increase the portion of employee wages diverted to retirement savings; ensuring the Superannuation Guarantee returns to the base level once inflation is in the target band.

Why/For facts sake:

• Reduces household spending: Just like higher interest rates curb demand by raising loan repayments, higher SG contributions would reduce disposable income, lowering demand-driven inflation without directly harming renters or mortgage holders.
• Supports long-term savings: The money isn’t lost—it builds retirement wealth, unlike rate rises, which transfer income to banks and increases their profits.
• Equity impact: Helps reduce intergenerational inequality, as younger workers build retirement savings faster.
• Spreads the impact: Could soften the unequal burden of rate hikes, which mostly affect households with large mortgages.

When/how much:

Seek mandate at next Federal Election (due 2028). Implement in the life of the next Parliament.

Counterarguments/counterfactuals:

• Wage suppression: Employers may push back on higher SG rates, arguing it increases employment costs, potentially hurting jobs or pay rises.
• Blunt tool: Unlike interest rates, which can be changed monthly and reversed quickly, adjusting SG is slower, more complex, and politically sensitive.
• Not a RBA lever: SG changes are controlled by the Federal Government, not the RBA—so it lacks agility as a monetary policy lever.
• Long-term vs short-term effects: Inflation requires immediate action, while SG changes have delayed effects on consumption and are harder to calibrate in real-time.

History of previous attempts/change leaders:

Grattan Institute and Australia Institute publications explore macroeconomic alternatives to blunt RBA rate hikes.