The Problem: 13 Rate Hikes, $7.2 Billion to the Banks
Between May 2022 and November 2023, the RBA raised the cash rate 13 consecutive times ā from a pandemic-era low of 0.10% to a restrictive 4.35%. The mechanism worked. Inflation cooled. But the distributional consequences were stark.
$25ā35B
additional annual interest paid by Australian mortgage holders during the tightening cycle
$7.2B
combined profit surge at the Big Four banks in FY2023, driven by widening lending/deposit spreads
30%
of Australian households carry a mortgage ā but bore virtually all of the inflation-fighting burden
$4.3T
total superannuation assets ā 140ā150% of GDP ā already the world's fourth-largest pension pool
| Bank | Mortgage Market Share | FY2023 NIM | FY2023 Net Income |
|---|
| Commonwealth Bank (CBA) | ~25% | 2.08% | $10.19B |
| National Australia Bank (NAB) | ~14% | 1.74% | $7.47B |
| Westpac (WBC) | ~21% | 1.95% | $7.20B |
| ANZ | ~14% | 1.70% | $7.10B |
Who Pays for Rate Hikes ā and Who Profits
Rate hikes function as a regressive wealth transfer. They forcibly extract liquidity from indebted households ā predominantly younger, working-class and middle-class families who took on debt to secure shelter ā and redistribute it as corporate profit to the financial sector and interest income to asset-rich unconstrained savers. The 30% of households with mortgages absorb the shock. The 30% who rent get hit indirectly via rising rents. The 30%+ who own outright suffer nothing ā and often profit from higher term deposit rates, partially counteracting the RBA's intent.
The Science: Why Monetary Policy Is Structurally Unfair
Modern macroeconomic literature uses Heterogeneous Agent New Keynesian (HANK) models to explain what RBA speeches don't say aloud: monetary policy relies on the leveraged minority to do the heavy lifting for everyone.
HANK models divide households into three groups by MPC (Marginal Propensity to Consume ā how much of an extra dollar they spend):
- "Wealthy hand-to-mouth" ā high illiquid assets (a house), low liquid cash. MPC ā high. When rates rise, their debt servicing costs surge; they immediately slash discretionary spending.
- "Poor hand-to-mouth" ā low assets, low cash. MPC ā near 1.0. Don't have mortgages; hurt by job losses and rent rises instead.
- "Unconstrained" ā high liquid and illiquid wealth. MPC ā low. Extra interest income barely changes their consumption behaviour. Rate hikes barely touch their demand.
The conclusion: monetary tightening achieves aggregate demand reduction almost entirely by crushing the consumption of the indebted middle class. The wealthy are largely unaffected. The poor are collateral damage. The system depends on this inequality to function.
The Idea: Keynes Solved This in 1940
In 1939, wartime Britain faced the same structural problem: too much money chasing too few goods. The government's tools ā punitive taxation or allowing inflation to run ā were both regressive. Keynes proposed a third way in his 1940 pamphlet How to Pay for the War: A Radical Plan for the Chancellor of the Exchequer.
His concept: "deferred pay." Rather than taxing surplus income away permanently, the state would mandate that a percentage of earnings above a minimum threshold be deposited into blocked accounts at the Post Office Savings Bank, earning 2.5% interest, inaccessible until the war concluded.
Keynes' Three Goals ā Solved Simultaneously
1. Inflation control ā physically removes excess liquidity from the consumer market, aligning demand with reduced supply of goods.
2. Social equity ā prevents workers from being robbed by the hidden tax of inflation; preserves wartime labour as compounded financial wealth.
3. Automatic stabilisation ā releasing blocked funds in tranches during the anticipated post-war slump acts as a pre-funded Keynesian stimulus without new government debt.
The MSSM is this idea ā updated, digitised, and applied to post-pandemic inflation. The logic is identical to what Keynes proved 85 years ago.
The Precedent: Singapore Has Done This for 50 Years
Singapore's Central Provident Fund (CPF), established in 1955, has been used as an active macroeconomic lever since 1968. This is not a theoretical proposal ā it is a half-century of documented evidence.
| Crisis | CPF Rate Before | CPF Rate After | Action |
|---|
| 1985ā86 Recession |
50% (25% employer / 25% worker) |
35% (10% employer / 25% worker) |
Employer rate slashed 15pp overnight ā restored corporate competitiveness, prevented mass layoffs without interest rate shocks |
| 1997ā99 Asian Financial Crisis |
40% (20% / 20%) |
30% (10% / 20%) |
Employer rate halved to mitigate regional capital flight and economic fallout; gradually restored as recovery took hold |
| 2003 SARS Recession |
36% (16% / 20%) |
33% (13% / 20%) |
Calibrated cut: "enough to help companies save costs, but not so drastic as to puncture domestic consumption" ā declassified cabinet archives |
| 1970sā84 Inflationary Boom |
Starting rate: low |
Peaked at 50% |
Rates raised systematically to siphon off excess liquidity and prevent wage inflation during rapid industrialisation |
The Singapore Result
Over 50 years, the CPF variable rate system successfully managed both inflation (by raising rates) and recessions (by cutting them) ā acting as an immediate fiscal stabiliser that bypasses the lag times and distributional harm of monetary policy. Singapore built the world's highest homeownership rates, a world-class public housing network, and a 100% retirement savings system ā all funded by the same mechanism this policy proposes to adapt.
Why Australia Can Do This Now: STP Phase 2 + Payday Super
The historical objection to variable super rates was administrative burden ā employers recalculating and remitting quarterly. This objection is now obsolete:
- Single Touch Payroll Phase 2 (mandatory from 2022): real-time, granular payroll data reported to the ATO every pay cycle, disaggregated into income, leave, tax, and super liability as distinct digital categories
- Payday Super (from July 2026): super must be remitted within 7 days of the pay event ā abandoning the old quarterly system entirely
With this infrastructure, an independent macroeconomic board could adjust the SG rate dynamically. The change would flow through centralised payroll software (Xero, MYOB, Reckon) instantaneously ā altering national consumption patterns within a single fortnightly pay cycle. Compare this to monetary policy, which takes months to transmit through fixed-rate mortgage rollovers and creates unpredictable "mortgage cliffs."
The Precision Comparison
A 2% SG rate increase on a $1 trillion national wage bill removes exactly $20 billion annually from aggregate demand ā precise, mathematically calculable, universally distributed. An equivalent RBA rate hike of 300 basis points removes an unpredictable amount from an unpredictable 30% of the population, with unpredictable lags, while enriching the banking sector by billions. The MSSM is a scalpel; rate hikes are a sledgehammer.
Counterarguments ā Tested and Answered
ā "Super funds will just pump the money into asset markets, inflating prices instead"
Rebuttal ā CPI and Asset Price Inflation Are Different Things
The primary driver of CPI inflation is household demand for everyday goods and services outstripping immediate supply. When money moves from a transaction account (spent immediately on retail and hospitality) into a super fund (invested long-term), it shifts from high-velocity consumption to low-velocity investment. Workers don't increase their weekly grocery spend because their inaccessible super balance ticked up on paper ā the MPC out of illiquid financial wealth is demonstrably near zero. And directing capital into infrastructure and corporate investment expands supply-side capacity over time, physically resolving the capacity constraints that cause inflation in the first place.
ā "Increased SG rates will crush small businesses with a sudden payroll tax spike"
Rebuttal ā Structure It as an Employee Contribution, Not an Employer On-Cost
The SG is currently paid on top of gross wages (an employer cost). If structured instead as a mandatory employee contribution ā deducted from gross pay, exactly as Singapore's CPF employee share works ā the employer's total wage bill remains static. Only the allocation between take-home pay and retirement savings changes. No business faces a cost spike. STP Phase 2 makes the recalculation automatic and instantaneous across all payroll software platforms.
ā "Taking 2% from low-income workers living on the poverty line causes severe harm"
Rebuttal ā Valid Concern, with a Known Solution
This is the strongest objection and it deserves a direct answer. Keynes identified this flaw in 1940 and solved it with a progressive exemption threshold: low-income workers were entirely exempt from the deferred pay mandate, with the contribution rate scaling progressively with income. Using STP Phase 2's real-time income disaggregation, an algorithm could exempt the first $45,000 of income from any macroeconomic SG adjustment. The working poor are fully shielded. The mechanism acts only on discretionary income ā which is exactly the right target for demand suppression. Even with this exemption, the MSSM is vastly superior to interest rate hikes, which harm low-income workers via sudden job losses and rent increases rather than a transparent, progressive savings adjustment.
What the Status Quo Cost Australia
13 rate hikes. $25ā35 billion in additional annual mortgage interest extracted from Australian households. $7.2 billion redirected into Big Four bank profits in a single year. Younger Australians locked out of the housing market permanently as serviceability calculations collapsed under rate pressure.
$7.2B transferred to bank shareholders in one tightening cycle
Under the MSSM, that same demand reduction would have occurred through deferred savings ā money that remains the legal property of the worker, compounding in their super fund. The inflation gets controlled. Nobody's retirement is funded by it except the workers themselves.
ā
Verdict: Supported with Progressive Safeguards
The MSSM is theoretically robust (HANK literature), historically validated (Singapore's CPF since 1968), and technically enabled by STP Phase 2 and Payday Super. The mechanism is more equitable, more precise, and faster-transmitting than interest rate hikes.
The design constraint is real but solved: a progressive exemption threshold (e.g., first $45,000 exempt) plus structuring the mechanism as an employee contribution rather than an employer on-cost eliminates both the regressive impact on low-income workers and the business solvency risk. Australia has a $4.3 trillion super system, the world's most sophisticated payroll reporting infrastructure, and a 50-year Singaporean proof of concept. The only missing element is the political will to stop using bank shareholders as the beneficiary of inflation management.
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