Is super a fairer way to fight inflation than interest rates?

Summary

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Podcast Summary: 7am — "Is super a fairer way to fight inflation than interest rates?"

Date: August 11, 2026
Host: Ruby Jones
Guest: Saul Eslake (Independent Economist)
Topic: Could superannuation contributions replace interest rates as a tool to fight inflation? Plus, the impacts of interest rates and tax changes on Australia’s housing market.

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Episode Overview

This episode explores whether Australia’s fight against inflation is being unfairly shouldered by mortgage holders via interest rates — and if a fairer alternative might be to use the superannuation (super) system to spread the pain more evenly. Economist Saul Eslake unpacks the history of inflation management in Australia, considers how changing super contributions could help, and discusses the latest trends in house prices amid changing economic conditions.

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Key Discussion Points & Insights

1. The RBA’s Dilemma: Interest Rates & Inflation

• Current Status: The Reserve Bank of Australia (RBA) has left rates on hold at 4.35%.
• Inflation Worries: Inflation remains above the target band (2–3%), and the RBA is cautious about easing too soon, fearing a repeat of past mistakes.
• Quote:

  “They’ve also left the door open to raising rates again if inflation surprises on the upside.” — Saul Eslake [02:00]

• Future Cuts Unlikely: The RBA is likely to require “at least two quarters with annual inflation at 2-point-something” before considering cuts, disappointing those hoping for near-term relief [02:20].

2. The Problem With Relying on Interest Rates Alone

• Concentration of Pain: About one-third of Australian households with mortgages “bear the brunt” of interest rate increases.
• Wider Economic Effects: Businesses, employment, house prices, and the exchange rate are also impacted, but “the biggest impact is on households who have mortgages” [03:11].
• Political Incentives: Since the late 1970s, politicians have preferred to shift tough decisions to the RBA, rather than raising taxes directly.

3. An Alternative Lever: Superannuation Contributions

• Historical Context: Prior to the 1970s, governments frequently used increases in taxes, not interest rates, to cool inflation.
• Super as a Tool: Raising compulsory super contributions reduces take-home pay, thus curbing spending similarly to higher interest rates but spreading the burden more broadly.
• Quote:

  “It might be possible during periods of high inflation to increase that proportion by, say, half of a percentage point… which would in turn reduce people’s wages… but it would have a similar effect to higher interest rates…” — Saul Eslake [06:01]

• Wider Impact: Unlike interest rates which primarily affect mortgage holders, super contribution adjustments would impact all workers, seen as fairer.
• Reversibility: When inflation is low or unemployment is high, lowering super rates could stimulate spending.

4. Feasibility & Implementation

• Who Decides?: Changing super rates would require new legislation via parliament, but some propose the RBA could be given limited powers to adjust them—mirroring how it sets interest rates.
• Quote:

  “There might be some questions around allowing an unelected body like the Board of the Reserve bank… to have that sort of power. But we’ve already done it with the power to set interest rates.” — Saul Eslake [07:50]

• Public Debate Needed: Any such reform would require substantial debate about fairness, administration, and political accountability.

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Housing Market: Interest Rates, Tax, and Price Trends

1. Recent Property Price Movements

• Declines Observed: Sydney and Melbourne house prices are down ~5.5% from their peak; Canberra by 2.5%. Falls are beginning in Perth, Adelaide, and Brisbane [10:50].
• Context Matters: Despite short-term falls, long-term owners remain “well in front” due to decades of price rises.
• Quote:

  “Someone whose house price might have fallen by 5%... if they bought that house 10 or more years ago, they’re still well in front.” — Saul Eslake [10:50]

2. Managing the Housing Correction

• Policy Balance: The government wants prices to moderate to increase affordability, but without a “25% crash” that would damage the economy.
• So Far, So Good: Expected falls are “manageable” and not likely to “tank the economy,” but will help more young Australians enter the market [12:07].
• Quote:

  “Declines… will be manageable. They won’t tank the economy… It is the most effective thing that could happen if you are keen to see younger Australians have the same chance of becoming homeowners.” — Saul Eslake [12:07]

3. What Next? Forecasting Future Price Changes

• Moderate Further Falls: Major banks predict an average 5-10% fall in capital cities; biggest falls in the most expensive markets [12:57].
• Impact of Migration: If migration policy tightens, prices could fall more drastically.
• Home Equity Reality Check: Most people only own the house they live in; declines affect upsizers and downsizers equally, so “are you actually worse off or not?”, usually, the answer is ‘no’.
• Property vs. Shares:

  “Share prices go up and down a lot… Nobody thinks that if share prices have gone down… that the government’s under some moral obligation to stop the losses from happening. In my view, why should property be any different?” — Saul Eslake [15:16]

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Notable Quotes & Moments

• Interest Rates and Inflation Targeting:

  “They’ve also left the door open to raising rates again if inflation surprises on the upside.” — Saul Eslake [02:00]

• Super Contributions as Inflation Tool:

  "If you are required to contribute more to superannuation temporarily, it’s still ultimately your money…you’ll get it back when you retire." — Saul Eslake [06:22]

• Fairness of Spreading the Burden:

  “It would be fairer if the burden of fighting inflation was spread across a bigger section of the population than simply those who happen to have a big mortgage.” — Saul Eslake [08:40]

• On Property Market Corrections:

  “Most people who own property only own one…are you really better off?” — Saul Eslake [14:10] "Why should property be any different [than shares]?" — Saul Eslake [15:16]

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Timestamps for Key Segments

• RBA’s inflation dilemma & interest rates: [00:53–02:53]
• Inequities of relying on interest rates: [03:11–04:18]
• The case for using super to fight inflation: [04:18–07:38]
• Challenges in implementing super changes: [07:40–09:20]
• Housing market impacts & forecasts: [10:04–15:16]

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Tone & Language

The episode balances accessible economics explanation, policy context, and social fairness. Saul Eslake speaks candidly but methodically, using examples rooted in history and everyday experience, making the subject matter relatable yet insightful.

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Conclusion

This episode makes the case that while interest rates are a blunt but currently “well-understood” tool for controlling inflation, their impact is not evenly distributed, with mortgage holders bearing most of the pain. Saul Eslake suggests that adjusting superannuation contributions could be a fairer alternative, albeit one with significant legislative and political hurdles. On housing, moderate price declines are shown as both inevitable and beneficial for younger Australians, provided they are managed and not allowed to spiral.

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Transcript

[Ruby Jones]

I'm Ruby Jones and you're listening to 7am. The Reserve bank of Australia yesterday left interest rates on hold at 4.35%, a relief for those with a mortgage. But as the bank weighs up future interest rate hikes to try and combat inflation, some economists say there's a fairer way to keep spending under wraps and spread the pain around. And the alternative could leave us all with bigger retirement nest egg. Today, independent economists saw s leg on whether superannuation could be used to manage inflation and what it all means for the future of housing. It's Wednesday, august 12th.

[Interviewer]

So yesterday the Reserve bank left interest rates on hold. So that means that people's mortgage repayments won't go up. Inflation, however, is still not as low as the bank wants it to be. So tell me a bit about how the Reserve bank would be weighing all of that up.

[Saul Eslake]

Well, you're right. The Reserve bank will be conscious that although the June quarter inflation number was a bit better than they had expected, it's nonetheless well above the upper band of their 2 to 3% target and even more so above the midpoint of that target to which they now attach greater weight than they did previously. They'll also, I think, be determined not to repeat the mistake that with the benefit of hindsight, they made last year in cutting interest rates only to find inflation rebounding to above their target band again. So I think although they left interest rates unchanged yesterday, they've also left the door open to raising rates again if inflation surprises on the upside.

[Reserve Bank Official]

The forecasts are uncertain and there are upside risk to inflation. So we will need still need to see some further progress before the Board can be confident that we are going to get inflation back to target with current monetary policy settings. The Board will raise interest rates further if that is what is required to bring inflation down in a timely way.

[Saul Eslake]

But also they will be more cautious in starting to cut rates when inflation does ultimately come down. I think they'll want to see at least 2/4 with the annual inflation rate at 2 point something rather than, as they did in the first half of last year, starting to cut rates with inflation still above 3. And they can't afford to make that mistake again. So people who are hoping that the Reserve bank will cut rates at some point in the next 12 months are probably going to be disappointed.

[Interviewer]

Okay. And so in terms of trying to bring that inflation rate down, the Reserve bank, it only has that one lever, interest rates. So is that a problem when the RBA is looking to stop Australians from spending that they're really only able to target that one third of the population or so that has a home loan.

[Saul Eslake]

Well, it's certainly the case that the roughly 1/3 of Australian households who have a mortgage bear the brunt of the fight against inflation. That's not to say that other people aren't affected in different ways by higher interest rates. I mean, businesses with overdrafts or term loans will also be affected by higher interest rates. And that may have some impact on, for example, the number of people they continue to employ. Higher interest rates can also, as we've seen, have an effect on house prices. And interest rates can also have an impact on the exchange rate, for example. Higher interest rates, all else being equal, will tend to push the Australian dollar up. But the biggest impact is on households who have mortgages. They often feel that that's unfair and ask, you know, why should we be bearing the brunt of the fight against inflation? And the conversation that is starting in some quarters is whether there might be some alternatives to that.

[Interviewer]

Okay, well, let's talk more about that. What alternatives are there?

[Saul Eslake]

Well, if you go back far enough in history, two or three decades after World War II, the most common response of governments to unacceptably high inflation was not to raise interest rates, but in fact, to raise taxes. Most famously in the early 1950s, in the aftermath of the Korean War boom, when Australia's inflation rate got to over 20%. You know, a figure that's hard to imagine today. And on a number of other occasions in the 1950s and in the late 60s and early 70s, governments did similar things in response to bouts of inflation that fell out of fashion. From the second half of the 1970s onwards, politicians became increasingly unwilling to take decisions that made significant parts of the electorate worse off. It was far easier to allow the Reserve bank to do that. And then as we see, whenever the Reserve bank puts interest rates up, Treasurer Jim Chalmers refers to it as the independent reserve bank. And he's in effect saying, don't blame me, it's the independent central bank. And that's much more convenient for politicians to do than having to take the responsibility for making decisions that might people temporarily worse off. So we're probably not going to go back to that way of responding to inflation. The suggestion that's been put more recently is could adjustments to the compulsory superannuation contribution rate play a role in dampening inflationary pressures when they're a problem? And I think the answer to that is yes, it could potentially.

[Interviewer]

Okay, well, talk me through that idea.

[Saul Eslake]

Well, as I think People will understand if you are working, your employer is required to put, I think the figure is now about 12.5% of your gross pay into superannuation. It might be possible during periods of high inflation to increase that proportion by say half of a percentage point or maybe even a full percentage point, which would in turn reduce people's wages. That wouldn't be popular, would reduce their take home pay, but it would have a similar effect to higher interest rates in the sense that if you reduce people's take home pay by increasing their superannuation contributions temporarily, that means they have less money to spend on the whole range of goods and services, reducing the demand for it and hence reducing upward pressure on inflation. And I guess the argument for thinking about this is that it affects a much broader group of the population than those who have mortgages. It doesn't affect people who aren't working, you know, retired people. The other consideration about this would be, of course, that if you are required to contribute more to superannuation temporarily, it's still ultimately your money, you'll get it back when you retire and draw on your superannuation. Or alternatively, the government could consider reducing superannuation contributions temporarily when inflation is low and unemployment is high. It could be a way of stimulating spending by giving people more money to spend when economic activity is softer.

[Interviewer]

Ok, so right now this is not

[Ruby Jones]

something being considered by the RBA or the government.

[Interviewer]

What would need to happen for a

[Ruby Jones]

change like this to be introduced and

[Interviewer]

who would be in control of it?

[Saul Eslake]

It would require an act of parliament for the superannuation contribution rate to be changed. So it's been suggested that an alternative might be to grant the Board of the Reserve bank the power to vary the superannuation contribution rate within defined limits over time. There would be no net gain to the superannuation industry. Sometimes the contribution rate would be above its average level, sometimes it would be below it. Yes, there might be some questions around allowing an unelected body like the Board of the Reserve bank or some other authority set up for that purpose to have that sort of power. But we've already done it with the power to set interest rates. And I guess the argument here is that reliance wholly on interest rates, while it's easy to administer and it's reasonably well understood, works quickly. It does place most of the burden of dealing with inflation on a relatively small part of the population, typically younger than the average. They're the ones who have bigger mortgages. Some of them are also carrying the cost of raising children and so forth, whereas if it was done through the superannuation system, some people might argue it would be fairer if the burden of fighting inflation was spread across a bigger section of the population than simply those who happen to have a big mortgage.

[Ruby Jones]

Still to come, how interest rates and the government's tax changes are affecting the housing market.

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[Property Market Analyst]

You seem to have been surprised by the speed and extent to which the property market has turned down. Was that a consideration in keeping rates on hold today? And will it stop you from making interest rate decisions in the future about inflation?

[Reserve Bank Official]

We were a bit surprised on the downside, but no, that's, that's not what's keeping us on hold. What's keeping us on hold is that we've already raised three times.

[Interviewer]

So let's talk a bit more broadly about the housing market because interest rates alongside the government's recent changes to negative gearing and capital gains tax have made a difference. We've seen a lot of panic as a result about falling house prices from some sections of the community and media. So tell me what the impact has been so far.

[Saul Eslake]

Well, so far house prices in Sydney and Melbourne are down about five and a half percent from their peak at the turn of the year. House prices in Canberra have fallen by about 2.5%. And house prices in Perth, Adelaide and Brisbane have started to fall a little bit in July. Now it's important to put some of those figures in perspective. I mean, house prices have risen by hundreds of percent over the last 30 or 40 years. So you know, someone whose house price might have fallen by 5% over the last six months if they bought that house 10 or more years ago, they're still well in front. The overwhelming majority of people who've bought property recently are likely to live in it for at least eight years. That's the norm. It's unlikely that someone who pays their mortgage down and place that they live for eight years will still be in negative equity in eight years time. But you know, we may well see property prices fall a bit further than they had expected.

[Interviewer]

There is a balance though, right? I mean, you want house prices to fall to make getting into the property market more achievable for people. But you want to be able to do that without tanking the housing market. How do you think that the government is tracking on those two metrics?

[Saul Eslake]

Well, I think so far so good. I mean, yes, you're right. Right. You wouldn't want to see house prices fall by 25% in 12 months. You know, that would obviously have a potentially significant dampening impact on economic activity. But, you know, declines of the sort that the banks are now forecasting, I think will be manageable. They won't tank the economy. There are some people who obviously won't like it, but it's not the end of the world. And I think it is the most effective thing that could happen. If you are keen to see younger Australians have the same chance of becoming homeowners as their parents and grandparents did in decades gone by, tell me a

[Ruby Jones]

little more about what you think we're going to see over the next year or couple of years. How much further will house prices fall?

[Saul Eslake]

Well, I suspect that we will see as the major banks are now forecasting prices decline by somewhere in the vicinity of 10% from their peaks in the most expensive cities. In other places, it might be smaller. If Australians choose to elect a government that wants substantial cuts to immigration, then prices could fall by more than that. And I think there would be other consequences of big cuts in Australia's migration program that I wouldn't necessarily want to see. But absent that, and assuming that we don't see big multiple increases in interest rates over the next six to 12 months, which I don't think we will, then a decline in prices of the order of 10% or so will probably be as far as it runs. The banks are now forecasting declines of between 5 and 10% for the average of all capital cities. Is that a bad thing? Well, although a lot of people might think it is, the reality is that most people who own property only own one that is the one in which they live. You can't crystallize any increase in the value of that property unless you sell it. And usually people who sell the home in which they own are selling it in order to trade up to a bigger one or to one in what they think is a more desirable location. Well, the value of your house might have gone up a lot, but that means the value of the property you're looking to buy has also become more expensive as well. So are you really better off? Conversely, if you're looking to sell your own home because you want to downsize, your kids have left home and you may not want to look after as big a house as you've lived in for the past 30 years? Well, yes, the value of your house might have gone down, but so has the value of the house you're going to buy and replace. So are you actually worse off or not? And I think the answer to that is for most people, no. Yes, if you have an investment property and prices have gone down, but share prices go up and down a lot. And nobody thinks that if share prices have gone down and people who bought shares might have a loss on their books, that the government's under some moral obligation to stop the losses from happening. In my view, why should property be any different?

[Ruby Jones]

Saul, thank you so much for your time.

[Saul Eslake]

It's been a pleasure. Thank you for having me.

[Reserve Bank Official]

Review.

[Ruby Jones]

Also in the news, Victoria is set to ban the use of suppression orders by convicted rapists after the recent use of the loophole to hide the identities of high profile offenders. Ralph Carr, a prominent entertainment manager, and Tom Silvani, the son of AFL footballer Steven Silvani, both use the law to suppress their identities during the trials and eventual convictions for rape. New Premier Ben Carroll says his government is committed to closing every loophole and Australia is set to roll out bird flu vaccines for some of our most at risk wildlife. Native species, which are in captivity in places like zoos and wildlife sanctuaries, will be the first to be vaccinated. Wild birds are nearly impossible to vaccinate as two doses of the vaccine are required for full protection. I'm Ruby Jones, this is 7:00am thanks for listening.