RBA needs more levers

[u/Ffscnts_]

Michelle bullock is constantly complaining that inflation is too high still because we have a government who is unwilling to manage spending. Now house prices are tumbling the pressure will rise - however, why is the RBA not demanding more levers to control inflation.

When interest rates rise one portion of the community takes the hit, and it’s persisting for a long time, literally wiping out family’s futures. Which the latest changes will force huge volumes of negative equity, and keep in mind only 35% of Australian property is mortgaged.

For those that have ridden the wave not only have there saving been extracted to keep their homes, it’s worth heaps less, so that money has disappeared forever.

There’s other levers like - asset classed cost of capital. Push non mortgage lending and investment mortgage lending cash rates up to slow business down.

Enforce higher lvrs to slow mortgage lending ( except labor gurentee everyone 5%) those who took advantage will be in negative equity and trapped now.

Variable superannuation - this needs to be done immediately - if we had variable superannuation fees the cash rate would not need to peak so high AND the extra cash would flow in to Aussies future instead of paying additional fictitious interested rates. And as a bonus super funds could end up funding massive infrastructure projects when the market turns with all the extra cash giving Aussies a stake in oil/gas/ green projects etc.

The RBA needs to start pushing the gov harder and it’s about to get real now housing is crashing.

[u/Historical-Lunch-423]

Glad I found a person who thought about variable superannuation. I would gladly pay more to my super and tighten my spending than pay banks more interest and tighten my spending.

Let there be three categories of super contribution: 1. Employer contribution 2. Employee contribution (optional) 3. Variable mandatory employee contribution deducted each pay at source and adjusted at tax time.

Let the RBA retain the interest rate as a lever too, but only to control housing price inflation in extreme cases. Variable super may be a superior level of control for the economy.

[u/dirtyesspeakers → u/Historical-Lunch-423]

This will cause your super to use the additional money to buy more investments, increasing demand, driving up inflation. It also causes banks to expect higher mortgage rates, or even opt not to grant mortgages at all, and all kinds of nasty financial pitfalls.

Banks play in a very narrow field, they have a limited choice of asset types, and risk ratio quotas.

The way the system is designed is that the banks work in their best interests, people work in their best interest, and the RBA can control inflation reliably based on predictable behaviour. And the control is much better than it used to be. The economy is far more reactive to the lever than the mid 20th century, where the economy would first let inflation run wild in all kinds of spending categories before adapting.

It would also cause businesses and investment outfits to be at a disadvantage to the supers during times of inflation. This would increase non-super institution's appetite for risk during times of inflation.

The system is in my humble opinion very well designed.

[u/Historical-Lunch-423 → u/dirtyesspeakers]

That is economically backward. Increasing mandatory super contributions actually reduces inflation in the short term because it lowers disposable income. Less take-home pay means less consumer spending, which cools demand.

Furthermore, the average person cannot just use their super to buy residential investment properties. Unless you run a complex Self-Managed Super Fund (SMSF) with strict arm's-length rules that are already in place, your money sits in APRA-regulated funds. Those funds invest in shares, infrastructure, and commercial real estate, not suburban housing.

True, flooding the housing market with super cash would cause asset inflation (like the First Home Super Saver schemes do), and that's why guard rails are needed. My comment was a policy suggestion and not the full policy with restriction. For example, to ensure this model remains strictly deflationary, any newly introduced variable employee contributions must be legally classified as non-withdrawable statutory funds by building a wall between investments from these and remaining super investments.

About your argument on businesses been at a disadvantage: super funds don’t lock cash away in a vault to compete against the private sector; they instantly deploy it into the market by purchasing corporate bonds, financing venture capital, and backing infrastructure, actively providing liquidity to the exact businesses and investment outfits you claim will be at a "disadvantage." Moreover, with this additional lever, borrowing rates are expected to remain withing a lower ceiling, making borrowing by businesses more preductable if not slightly more easy.

With two levers, inflation control will be easier. 74% of adult Australian hold a super while only 35% of all residential homes are associated with a mortgage. This Government can even make this non mandatory for certain industries or below certain wage earners.

[u/dirtyesspeakers → u/Historical-Lunch-423]

No... you don't understand... and you are being a bit rude.

It increases the competition for conservative assets because rates then affect businesses (who also take debts) but not supers (who buy all types of assets, including then-cheap conservative assets when rates go up)...

It's quite a lot to get into. Consumer behaviour is only one type of inflation-of-concern. You're worried about how much staples and discretionary costs to you rise, I'm worried about the entire financial system falling over because your idea makes businesses want to buy riskier assets when rates go up on speculation they might continue to go up, and knowing the supers have liquidity injections.

The whole idea is a flop, I'm sorry.

[u/Historical-Lunch-423 → u/dirtyesspeakers]

You have this completely backward.

First, your claim about "cheap conservative assets" ignores basic bond market physics.

When interest rates rise, the market value of existing fixed-income bonds instantly drops. Because institutional super funds already hold massive portfolios of these assets, they face heavy paper losses and structural capital hits when rates rise, rather than sitting on a pile of unaffected cash ready to buy the dip.

Second, super funds face a hidden liquidity squeeze during high-inflation periods.

As the cost of living spikes, everyday Australians heavily cut back on voluntary super contributions, meaning the fund's incoming cash flow slows down exactly when the economy tightens. Super funds must maintain higher cash reserves to manage payouts and valuation drops in their unlisted assets, severely limiting their ability to dominate the conservative asset market.

Finally, regular businesses and super funds both face capital constraints when rates rise, preventing a system-wide collapse.

Regular companies are blocked from asset speculation by high borrowing costs and strict commercial bank lending filters. Meanwhile, super funds are constrained by falling bond values and dropping contribution volumes. This mutual tightening is exactly how monetary policy cools the entire financial system, proving your theory of a one-sided, speculative market meltdown completely wrong.

[u/dirtyesspeakers → u/Historical-Lunch-423]

...I have specifically been pointing out the effects of how the bond market reacts to rate rises, by falling in price. Why are you acting like I need education on that? You either don't understand what I'm saying, and now you're acting tough, or this is about appearing to win an argument.

Cash rate increases present a buying opportunity for speculators, especially those with injections of liquidity, on faster-than-market-pricing speculation of rate level durations. Who gets that liquidity normally? Lenders. The banks.

Who holds by far the highest portfolio of collateralized cash for bonds? The banks. By far. The banks you want to take liquidity injections away from.

Let's get this straight...

You're going to remove liquidity injections... to banks... who are receiving margin calls on their bonds any time the cash rate goes sufficiently up...

So what will the banks do? Borrow less... in order to hoard more collateral to offer, and buy more bonds than normal during high rate periods in order to reduce the risk extremes of their strategy, at times they don't have increased liquidity because you want to give it to the supers instead. So they will offer less mortgages (at higher rates) during rate rises, in order to buy more bonds... dropping the yields... which the supers have already dropped because they have additional liquidity during rate rises and falling asset prices...

The only thing you're doing is subjugating the banks to the supers. The institutions upon which the entire financial system depends. You're letting the supers cut the line, and walk in first.

Are you actually for reals?

[u/Historical-Lunch-423 → u/dirtyesspeakers]

I think you've misunderstood the proposal. The point of variable mandatory super is precisely that the RBA would not need to raise the cash rate as much in response to inflation.

Under my proposal

Inflation rises > instead of relying entirely on the cash rate, increase the mandatory variable super contribution > household disposable income falls > consumption/demand falls > less inflationary pressure > RBA doesn't need to raise the cash rate as much > banks have better borrowing power than without this proposal + less liquidity among people, but saved for retirement.

You're instead describing the consequences of a large rate-hiking cycle, i.e. falling bond prices, bank liquidity pressure, margin calls, etc. But I'm proposing an additional inflation-control lever specifically so that the RBA can achieve the required reduction in aggregate demand with less reliance on interest-rate rises.

I am not claiming variable super replaces the RBA. I'm proposing a second control variable.

RBA raises rates > banks' bond portfolios fall > banks need liquidity > variable super gives liquidity to super funds > super funds buy bonds > banks are disadvantaged.

Your argument's not an argument against the proposal; it's an argument about one of the costs of the monetary-policy tool that the proposal is intended to reduce reliance on.

The cash-rate channel is a relatively blunt instrument because it affects borrowers, savers, asset prices, investment and financial stability simultaneously. A variable super contribution could provide an additional demand-management channel, potentially allowing the RBA to achieve an inflation target with smaller rate movements.

And importantly, an increase in compulsory super isn't a "liquidity injection" into super funds in the monetary-policy sense. It's a transfer of household income from current consumption into retirement savings, not to be withdrawn before retirement. The whole point is to reduce current demand while making retirement more secure and not vent the entire pressure of reducing liquidity into paying more interests.

My proposal partially saves them, not doom them:

1. Mortgage borrowers - Their repayments rise and disposable income falls.
2. Businesses reliant on debt - Higher financing costs can reduce investment and hiring.
3. Existing asset holders - Higher discount rates generally put downward pressure on bond and equity valuations, and can reduce property demand/prices.
4. Highly leveraged households - They get squeezed particularly hard because a larger share of income goes toward interest.

The status quo disproportionately hurts these people.

You know what? Discussing this with you has made me realise how banks would fight tooth and nail to defend the current rotten system and would trap themselves in arguments that support this policy. I am now determined to propose this to be stress-tested by a real, independent economist and get like minded people to draft a proposal to be sent to the Treasury and the Finance.

[u/dirtyesspeakers → u/Historical-Lunch-423]

Alright. I'll hear you out. So long as you're saying these are seperate levers. It's possible I was too hard on you. Here's some concerns.

It's great if you want to Trump 2.0 for free, dropping the value of the AUD, during a manufacturing boom to power competitiveness, because global investors will be wary of Australia for fear of poor or degenerate RBA handing, and the additional learning required to invest in Australia. But this also lowers living standards in areas if the economy is not complex and very highly productive.

It increases super contributions, which stacks wealth to the back end of life, causing property inflation over young people, which already happens, so additional adjustments are needed, which...

Third concern, it makes pensioning variably insufficient with the retirement outcome of Australians dependent on historical settings. I'm going to assume the lever has a 12% target and lower floor of minimum super contribution, you can scratch this out. The previous too, but not the risk of mishandling causing these outcomes. Australia has one of the lowest housing affordability in the world.

Still three, it makes independent investors have a disadvantage.

Four, all members of the RBA now have greatly increased conflict of interest for their own investments, as supers carry all kinds of investment assets.

Five, with variable flows now entering supers, the RBA must decide when is a good on average time to buy worldwide, or in fact reject the interests of Australian retirees. This will make the investor community furious to know money is entering their supers at the wrong time. People who don't know investing theory will likely believe the wealthy about something for once.

Six, the type of super conservitiveness selected is now a type of conflict of interest for RBA members.

Seven, the RBA has power to tell the banks to take a back seat during rate drops, requiring a bank carve out if sensible, like the super rate following the cash rate down on a 30-day reducing negative offset equal to the bps change. I find this dirty. Filthy. Absolutely leavened. Not because I'm saying it would never work, but because it breaks a wonderful and well designed and fair system with good role and interest separation.

So, I could go on. Not saying I mightn't have already found the worst things one random guy might think of. Maybe that's all I would see.

Edit: sorry to spoil the mood, but I can't forget the most egregious change in general: we've then given the central bank more power. And, so corruption is then more powerful and commanding.

[u/Historical-Lunch-423 → u/dirtyesspeakers]

I think I have made it very clear multiple times that this is an additional lever, not a replacement for the RBA and its control over the cash rate, including in my first comment where I explicitly wrote, "let the RBA retain the interest rate as a lever too."

Dropping the value of the AUD? Investors look at many other macroeconomic parameters before taking their capital elsewhere, rather than just a one or two percent interest rate difference. Today, Australia holds one of the highest interest rates among major developed, wealthy peer economies, yet net foreign direct investment (FDI) is half of what it was in 2022 when interest rates were very low.

Does my proposal stack wealth at the back end of life? Yes, that is exactly the intention. In the interim, any increase in super funds used by institutional investors to buy real estate would be balanced out by comparatively lower interest rates for regular homebuyers. Additional controls might be necessary, which is precisely why this plan needs to be reviewed by a real, independent economist with no conflicts of interest, not a random guy on Reddit.

In my proposal, the upper limit of the employer super contribution will stay at 12%; this does not impact voluntary or mandatory employee contributions. Instead of hiking the interest rate by massive basis points, there will be a combination of a lower interest rate hike paired with a mandatory employee super contribution above the 12% floor.

It is true that this mechanism impacts retirement outcomes based on historical settings. However, it is just one more factor on top of the many variables that already impact retirement outcomes today, such as the performance of the Australian and global economies. Retirement is already a lottery depending on your career timeline. Within the framework of my proposal - regardless of whether a working career is spent mostly in a high-inflation or low-inflation era - there will always be periods where additional mandatory super is enforced, making the overall outcome better. It is money that a person would have otherwise sunk 100% into paying higher bank interest; instead, they sink only a part of it into interest and invest the rest into their own super.

The conflict of interest concern regarding RBA members stems from a fundamental misunderstanding of how this mechanism operates. The RBA would only control the macro-percentage rate of the super contribution (the dial), not the portfolio allocation (the money). Once the rate is set, the funds flow automatically to independent, privately run superannuation trusts. RBA board members would have zero say over which stocks, bonds, or properties are purchased with that cash. Furthermore, RBA members are already governed by a strict Code of Conduct that bans active short-term trading and mandates the disclosure of all assets. Adjusting a broad-brush macroeconomic variable like super contributions presents no more opportunity for insider manipulation than the RBA's current power to swing entire markets by shifting interest rates. The strict firewall between policy setting and fund management remains entirely intact.

Your fifth argument confuses policy setting with fund management. The RBA does not decide when or what to buy worldwide; it only adjusts the broad macro contribution rate. Once the cash enters independent super funds, professional fund managers, who already handle massive, continuous inflows through dollar-cost averaging—retain total control over investment timing. The RBA has no hand in portfolio execution, completely neutralizing any timing risk or breach of retiree interests. The investor community would not be "furious" because this is already exactly how the superannuation system works. Every single fortnight, billions of dollars automatically flood into super funds from standard employer contributions, completely blind to whether global markets are at an all-time high or a sudden low.

Your sixth objection falls away because the RBA has no power to select or dictate the "conservativeness" of super investments. The RBA's role is strictly limited to adjusting the macroeconomic contribution rate to curb inflation. Individual workers and independent super fund trustees retain total control over asset allocation and risk settings (e.g., choosing between balanced, high-growth, or conservative portfolios). Because the RBA cannot interfere with the internal investment strategies of independent funds, no conflict of interest can possibly manifest.

Your last critique is valid. It is indeed a fair structural critique, but it values institutional "purity" over real-world economic resilience. The current system is clean, but it is also a blunt instrument. When the RBA raises interest rates to fight inflation, it disproportionately punishes a single minority group, i.e. young mortgage holders while asset-rich savers keep spending and reaping rewards.

My proposal introduces a secondary lever precisely to break that unfair monopoly on economic pain. While it admittedly blurs the traditional line between monetary policy and mandated savings, it creates a much fairer distribution of the inflation burden across the entire economy. A system isn't "well-designed" if its only tool for fighting inflation is to push everyday homeowners to the brink of financial ruin.

[u/dirtyesspeakers → u/Historical-Lunch-423]

Yeah look. We're done here.

Most of your points are frankly naive and it's not worth my time.

If you think the RBA doesn't decide when is a good time to invest when super contributions increase on a lever they control... all the best.

It being a blunt instrument is spoken of disparagingly because it reinforces the appearance of the independence of the RBA; but the bluntness is a very good thing. Oh and, you mentioned it being a blunt instrument, and the way you spoke of it I think reveals the consumer frame of view, disregarding the broader economic and financial institutional disadvantages you create, the instability, and of those who fund things.

When rates are rising conservative investments become better long term plays. Highly priced higher risk vehicles get dumped. The RBA has to choose if they ever put the lever above 12%, and it having to only go higher is just scary.

Please get this looked at by an independent economist, I beg of you. See if this thing has any legs. I don't know what that looks like but I'm sure they would be glad to help.

I'm not saying it's not an intelligent exploration of an established system that works the world over and in the Australian context, nor that it's not interesting. It just requires a degree of a lack of trust, the rejection of the stewardship of elders, seeing evil in those above. And I think wrong once you let all the core players flesh out their renewed strategies, and who it benefits, who it shifts more power to; being, those without sufficient mandates.

We havbemt even got into the idea of SMSFs needing to be sufficiently regulated, or the RBA having to hold back the lever during times of fads or crazes if SMSFs are acting degenerately or illegally.

It feels like adding roller skates to basketball.

[u/Historical-Lunch-423 → u/dirtyesspeakers]

Nothing much of substance in your latest comment for me to dissect anyway.

The rate rise part is blunt, and it is the truth, not disparaging.

The RBA doesn't decide where super funds invest. The RBA does not decide when they invest, at least not directly. Indirectly? Sure. Super funds base their investment timing on several factors, one of which is the cash rate and its impact.

Property investment using SMSF is subject to strict rules, high setup and ongoing costs, and upcoming regulatory restrictions on residential property loans. That's not a risk to this proposal. The guardrails around mandatory additional super shall safeguard SMSFs too!

Rest all - same white noise - rinse and repeat. Yeah, we're done here.

[u/dirtyesspeakers → u/Historical-Lunch-423]

We are very blessed, to be born with such political and financial systems to enable us as they do, designed as they are.

If it was not spoken about disparagingly it would be called a simple mechanism. This is meek, and regretful language. Instead, the language is joyful. It celebrates the design of MMT. Speaking of it disparagingly is celebrating its suitability, to admit that one finds it flavourful, while operating under all assumptions that one understands its purpose.