Finance
Superannuation rule change could better manage economy: ‘Fairer and more effective’
It doesn’t seem to make a lot of sense, does it? Someone decides to go to war, the oil stops flowing, prices go up and our economy starts shutting down.
The best response we can come up with is to raise interest rates, to dampen demand a little more. As if doubling the price of petrol won’t do that enough.
Problem is, raising interest rates only hurts people with mortgages and renters, typically not high on the wealth ladder. People with no debt get more money, and will spend it. And the rising interest rates hurt the businesses that have already been hit. Just when we want to raise supply.
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Besides interest rates, standard macroeconomic thinking is there’s only one other lever. We could reduce net government spending, which is hard to do when you’ve just cut taxes on diesel and petrol, which will fuel demand just when you don’t want that to happen.
But there may be a third way. To our collective credit, Australia has set up what many regard as the world’s best superannuation system. As at December 2025, we had close to $4.5 trillion set aside for our futures. And, every hour of every day, 12% of our income is added to the pile.
It’s been suggested that the super guarantee levy might be used as the third ‘lever’ to modulate the economy, in addition to fiscal and monetary policy.
This was actually one of the arguments used when the levy was introduced back in 1992. Instead of giving workers a wage rise, which might trigger wage-inflation, Bill Kelty and Paul Keating negotiated a compulsory savings scheme. Workers would benefit, but not immediately.
Perhaps it’s worth revisiting that negotiation. Say you want to set the levy at 12% over the long term. When times are tough you might put the 12% rate down a little to stimulate the economy. Instead of a $100 wage and $12 in super, people get $102 for now and $10 for later. We get through.
Or, when inflation is running you might nudge the 12% up a little to constrain demand. The extra isn’t paid by business. Instead of the $100 wage and $12 in super, people get $98 for now and $14 for later. Given the cost of living crisis, maybe the lever only cuts in above a certain income.
This would arguably be fairer, easier and more effective than the interest rate sledgehammer. It would inject or remove the same amount of money from the economy. But the pain is spread, people keep their own money rather than paying it to the banks, and businesses aren’t hit by higher interest rates just when you want them to invest in their capacity.
It’s not a complete replacement for interest rate changes, but the three levers can be used in combination to manage the economy more effectively and more fairly.
This is just one of the ways that we might think a little deeper about Australia’s strategic stockpile of cash, without jeopardising its fundamental superannuation purpose.
For example, super funds are designed to provide for the future, but are assessed on quarter-year returns. Yet private wealth may be oversold if our natural, social and human capital are being shredded in the meantime.
Perhaps our super can help address some of our most intractable problems. Take housing. In Europe, pension funds invest heaving in high-quality, long-term rental housing near city centres. Their returns are set-and-forget at a level compatible with their low long-term risk.
This doesn’t happen in Australia, but it might. About 30% of our super already sits in low-return, low-risk bonds, so a slice of that could create just the housing that Australia needs, with no downside to anyone in the picture.
It’s currently hard for a super fund to do this, as they compete on those quarterly returns. But to keep competition on an even playing field, what if all super funds were required to invest say 15% of its pool in the public housing and other infrastructure that our society needs.
Many would say that our super fund is just that – for super – and should not be meddled with. We would say the pool is now so large that it is already having unintended implications for our economy. And, that we need to draw on these funds directly because governments are no longer prepared to borrow or tax more for essential purposes.
And then there are those who say ‘That’s our money and you can’t say what it’s for’. To which we reply that we wouldn’t have it if our government hadn’t set up the scheme, and that we wouldn’t have so much without the tax breaks it offers.
So let’s give a little more thought to how we can best use this national wealth for national benefit. We have precious few other choices.
Josh Dowse and Ian Woods are the authors of ESG Unlocked: How successful companies and investors build our natural, social, human and financial capital.
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