A Fairer Way to Fight Inflation: Rethinking Australia's Monetary Toolkit

A personal introduction

In 1989 I watched interest rates climb past 17%. Over the years that followed I watched friends, family and people I loved lose their businesses and their homes. Some lost their lives. It was a devastating period, and it touched almost every Australian in some way.

Paul Keating, then Treasurer, called it "the recession we had to have". More than 30 years later I can still name families who never recovered, financially or emotionally. The damage did not end when rates came down. It carried into the next generation.

That is why I can't stay quiet about where we are heading now.

The Reserve Bank's purpose, written into law, is the economic prosperity and welfare of the people of Australia, now and into the future. I cannot reconcile that purpose with a policy that sets out to push unemployment higher and accepts that families will lose their homes along the way. Especially when the main driver of today's inflation is a war on the other side of the world that no rate rise can touch.

On 29 September the Governor was asked whether the Bank was exploring any other tools. Her answer was that the interest rate is the only tool she can think of. I don't doubt her sincerity, but that answer is the problem. When an institution entrusted with the nation's economic wellbeing finds its mandate too narrow for the problems in front of it, the responsible thing is to say so, publicly, and to push for the tools the country needs. Accepting the limits and passing the cost on to households is not good enough. We fund some of the best economic minds in the country. They should be free, and expected, to think beyond the square.

Today's problems are more complex than those of 1989. Household debt is nearly three times what it was relative to income, so every rate rise lands harder. Energy shocks, climate, AI and concentrated markets all feed into prices in ways the cash rate cannot reach. But we also have far better data, analytical capacity and international experience than we had then. There is no longer any excuse for reaching for the same blunt instrument and calling the damage unavoidable.

What is needed is consideration, consultation and communication, and the courage to look at the problem as a whole. Government, the RBA and our regulators should be working together, openly, to build a framework that brings inflation down without sacrificing the people least able to bear it.

The paper that follows sets out how. It draws on Australia's own history, on what other countries have done, and on tools we already have. I'm sharing it because I believe we can do better, and because I don't want another generation to carry what mine did.

Mark Falzon

Executive summary

Australia is fighting a 2026 inflation problem with a 1990s instrument, and the instrument is breaking the people it is meant to protect. The causes of this inflation are largely outside our borders and outside the reach of the cash rate. The burden of fighting it is falling on a narrow group of households who carry more debt than any generation before them. There is a better way, and Australia has the tools, the data and the precedents to adopt it now.

Current reality: a system not fit for purpose

The Reserve Bank has raised the cash rate four times this year to 4.60%, its highest level since 2011. It has done so in response to inflation of 4.0% that is being driven first by a war in the Middle East that has choked the Strait of Hormuz, pushing fuel prices up 14.8% in a single month, and second by climate-affected food production, concentrated markets and a debt-funded data centre build. Interest rates can do nothing about the first two and very little about the third.

What rates can do is reduce spending by making households poorer, and in Australia they do this with unusual force and unusual unfairness:

• The debt burden has changed beyond recognition. Household debt has risen from about 68% of disposable income in 1990 to around 185% today. Every rate rise now takes almost three times as much out of household income as the same rise did in the late 1980s. On that measure, the tightening since 2022 has hit household budgets harder than the 17% interest rates of 1989.
• The cost lands on the few. Roughly a third of households carry a mortgage, mostly at variable rates. Renters feel it through rising rents. Young workers feel it through lost jobs. Meanwhile outright owners and cash-rich households earn more on their deposits and keep spending.
• Unemployment has become a deliberate target. The Governor has said unemployment of 4.5% to 5% would probably take enough heat out of the labour market. That means tens of thousands more Australians out of work, by design. Youth unemployment is already 10.8%.
• Wages are not the problem. Wages are growing at 3.2% against inflation of 3.9%. Real wages have fallen for three quarters straight, and the Governor herself has confirmed there is no wage-price spiral. Bracket creep is lifting the tax take on top.
• Young families are being caught. Government encouraged over 100,000 first home buyers into the market with 5% deposits. With prices now falling, the RBA's own Financial Stability Review identifies them as the most likely to be in negative equity, and rising unemployment is exactly what turns negative equity into forced sales.
• Concentrated industries are protected. Banks, supermarkets, fuel and energy firms have the pricing power to hold margins through a shock. Record profits sit alongside falling real wages. And every rate rise is a wealth transfer: the extra interest taken from borrowers flows to banks, their shareholders and depositors, who are mostly older and wealthier. Nothing comes back to the households making the sacrifice.
• The institution has stopped looking for answers. Asked on 29 September whether the RBA was exploring other tools, the Governor said she was not aware of any alternative within the Bank's control. Asked about using superannuation instead, she said it was not within the Bank's gift.

The RBA's legislated purpose is to promote "the economic prosperity and welfare of the people of Australia both now and into the future". Price stability and full employment are the means to that end. A strategy that deliberately raises unemployment and pushes young families toward losing their homes, in response to an oil shock it cannot influence, is hard to reconcile with that purpose.

The vision: shared-burden inflation control

There is a solution, and it is not radical. It is a division of labour that most of the developed world has already tested in parts, and that Australia itself used successfully in the Accord years and with the 2022 energy price caps:

• Government meets supply shocks with supply and price measures, paid for by those profiting from the shock.
• Restraint, when it is needed, is spread across the whole economy through tools that return the money to the people making the sacrifice (a temporary increase in compulsory superannuation) or to the nation (an emergency GST lever whose proceeds are returned as tax relief once the shock has passed), rather than transferring it to lenders.
• Regulators use real-time data and AI to see where price rises are coming from and act on them directly.
• The RBA is expected to say publicly when its instrument is wrong for the shock, and to advise government on the tools that would work better.
• The RBA is left to do what the cash rate does well, managing persistent domestic demand, and can therefore move earlier, less often and less violently.

The complexity of today's shocks (conflict, climate, AI, global supply chains) demands a broader toolkit. With the data and analytical capacity now available, there is no technical excuse for relying on a single blunt instrument. What is missing is leadership: consideration, consultation and communication between government, the RBA and regulators, and the courage to act faster than institutional habit allows.

Next steps: what Australia should do now

The rest of this paper sets out the evidence and the detail behind each of these steps.

1. The current Australian situation

The inflation Australia is facing in late 2026 is driven first by an energy shock that started offshore, and second by domestic capacity pressure that the RBA believes is still there. Both are real. The policy response treats them as one problem.

Energy and fuel

The war that began in late February has choked flows through the Strait of Hormuz, which carried about a fifth of the world's oil before the conflict. By early September only a handful of commodity vessels a day were passing through, and Brent was trading in the mid to high US$90s (Reuters via Metrobank). The RBA's own September statement names the Middle East conflict and global energy prices as the first reason for the hike, and notes that higher fuel prices have partly passed through to other goods and services. Road freight costs rose 15.5% on the producer price index, which is how a fuel shock becomes a grocery shock. At her press conference the Governor described fuel, fertiliser and transport prices as now permanently higher.

The August jump was made worse by policy timing: the remaining federal fuel excise relief was unwound in the same month the oil price climbed.

Food

Food inflation reflects freight and fuel costs, but also climate. Drought, flood and heat events now hit Australian production more often, and the supermarket sector is concentrated enough that cost increases pass through quickly and decreases pass through slowly. A cash rate move does nothing about either.

Housing, tax and the 5% deposit scheme

The 2026 Budget legislated two major changes: negative gearing on residential property limited to new builds, and the 50% capital gains discount replaced with cost-base indexation and a 30% minimum tax on gains (ATO). Combined with four rate rises, prices have now fallen in most capital cities and new housing loans have dropped noticeably.

That is landing hardest on the people government encouraged into the market. Just over 100,000 first home buyers have used the expanded 5% Deposit Scheme since October 2025. The RBA's October Financial Stability Review says negative equity is still uncommon overall but concentrated among recent and high-LVR buyers, explicitly including scheme participants (RBA FSR). On one industry estimate, a 5% deposit buyer cannot sell and clear the loan once prices fall about 2.6%, after transaction costs (PropertyGo). Negative equity alone rarely causes default; job loss on top of it does. That is why the RBA's stated intention to lift unemployment matters so much to this group.

The Governor has also acknowledged that the housing downturn may make it uneconomic for developers to build, at a time of structural undersupply. Rate rises are therefore working against the one lasting fix for rents.

Wages and bracket creep

Wages are not driving this. Annual wage growth has slowed from 3.4% to 3.2%, 79% of jobs had rises under 4%, and 4.1% of jobs recorded a pay cut in the June quarter. The Governor agreed on 29 September that there is no wage-price spiral, and that rising unit labour costs reflect weak productivity rather than fast wage growth. At the same time, fiscal drag (bracket creep) lifts average tax rates every year that thresholds stay fixed, so after-tax real incomes are falling faster than the headline real wage figure suggests. Households are being squeezed by inflation, by rates and by tax at once.

Unemployment as a policy target

In September the Governor said an unemployment rate between 4.5% and 5% would probably take enough heat out of the labour market. At current labour force size, moving from 4.6% to 5% means roughly 55,000 more people out of work (The New Daily). The RBA's own panel of forecasters puts the balanced, non-inflationary rate at about 4.4%, below where unemployment already sits.

Profits

The Commonwealth Bank posted a record $10.98 billion cash profit for FY26, up 7%, with return on equity at 14%. CBA's net interest margin actually fell slightly; the growth came mainly from lending volume. The stronger point is structural. In concentrated markets (banking, supermarkets, fuel retail, energy) firms have the pricing power to protect margins through a shock, so households and small business absorb it. Rate rises do nothing to change that.

2. The RBA's mandate and the welfare of the Australian people

The 2 to 3% inflation target is not the RBA's purpose; it is one of the means to it. The law is explicit that the overriding goal is the welfare of Australians, and that price stability and full employment carry equal weight in serving it. An institution with that purpose has a duty to say when its only instrument is the wrong one.

What the law says

The 2024 amendments to the Reserve Bank Act, which followed the 2023 Review of the RBA, set the overarching objective of the Bank as "to promote the economic prosperity and welfare of the people of Australia both now and into the future" (RBA). Monetary policy serves that objective by pursuing two goals: price stability and the maintenance of full employment. The Statement on the Conduct of Monetary Policy agreed between the Treasurer and the Monetary Policy Board repeats the same hierarchy: welfare first, with price stability and full employment as the way to achieve it (RBA).

The inflation target of 2 to 3%, aiming at the 2.5% midpoint, is how price stability is put into practice. The RBA's own description of the framework says its flexibility allows the Board to look through short-term deviations from the target, precisely so it avoids fine-tuning that would be unhelpful for the welfare of Australians.

Three tensions with current policy

Full employment is a co-equal goal, not a lever. The Governor's statement that unemployment of 4.5% to 5% would ease inflation treats one objective as a tool to deliver the other. With unemployment already above the RBA panel's estimate of the balanced rate (about 4.4%), deliberately pushing it higher sits uneasily with a mandate that gives employment equal weight.

"Now and into the future" brings in the generational cost. Job loss early in a working life, a forced sale in a falling market, or a small business closure has effects that last for decades. Those who lived through 1989 to 1992 know this is not theory. A strategy that trades those permanent losses for a faster return to 2.5% is making a welfare judgement, and that judgement should be made openly.

The framework already permits looking through supply shocks. The flexibility exists in the RBA's own words. The question is not whether the Board can look through an oil shock, but why it has chosen not to, and whether government has given it any alternative to lean on.

What the Governor said on 29 September

The press conference after the September decision showed the problem plainly (RBA transcript).

• Asked whether the RBA was doing any work on other tools, the Governor said she was not aware of any alternative to interest rates within the Bank's control, describing the cash rate as "the only tool I can think of that we've got".
• Asked whether adjusting the superannuation guarantee would be a more nuanced way to manage inflation, she said that was not within the Bank's gift and declined to comment.
• Asked by 9News whether, with a blunt instrument and households footing the bill for shocks they did not cause, the solution was becoming detached from the problem, she pointed to the other channels of monetary policy, chiefly the exchange rate.
• She acknowledged that the Middle East shock had nothing to do with households, but had made the country poorer, and that the decision would hit some people hard.

These answers are candid, and the Governor is right that the RBA does not control fiscal or superannuation policy. But stating the limits of the mandate is where the conversation should begin, not where it ends.

The case for the RBA to ask for better tools

There is clear precedent for a Governor speaking beyond the cash rate. Through 2019, Governor Philip Lowe repeatedly urged government to use fiscal policy, infrastructure investment and structural reform, arguing that monetary policy could not carry the load alone. Governors routinely comment on productivity and housing supply, neither of which they control. Governor Bullock did both at the same press conference.

So "not within our gift" is a choice about what to say, not a legal constraint. A Governor can say, within her role and without threatening the Bank's independence: the cash rate is the only tool we have; it is poorly suited to this shock; and the country would be better served if government gave it complementary tools. That is the conversation the welfare objective in the Act calls for. Without it, the institution with the most expertise and the loudest voice on inflation is effectively endorsing a single-instrument approach by its silence.

This paper therefore recommends that speaking up becomes an expectation, not a matter of individual courage. When the RBA judges that its instrument is poorly matched to the shock it faces, it should say so in its statements and in Senate estimates, and set out which complementary tools would reduce the cost to employment and households (see recommendation 1).

The fair counterpoint

The RBA's answer is that high inflation is itself a welfare cost, and it falls hardest on low-income households, renters and pensioners who have no assets that rise with prices. That is true, and a credible paper must accept it. Letting inflation become entrenched would also, eventually, require even higher rates and a deeper recession to remove.

The disagreement is therefore not about whether inflation matters. It is about whether the welfare of Australians is best served by loading the entire adjustment onto mortgage holders, renters and workers, or by spreading it through a broader set of tools. A mandate built around the welfare of the whole population points toward the second.

3. Why the cash rate is the wrong lead tool for this shock

The cash rate is a demand tool. Against a supply shock it can only work by making enough people poorer that total spending falls. In Australia it does this with more force than at any time in our history, and it chooses who pays badly.

The debt burden: why 4.6% today hurts more than 17% did in 1989

The headline cash rate is a poor guide to how hard policy is biting. What matters to a household is how much of its income a rate rise takes, and that depends on how much it owes. Australian household debt has nearly tripled relative to income since 1990.

The illustrative rows multiply the rate change by the debt ratio and assume full pass-through to all household debt; actual effects differ because not all debt is variable and not all households borrow. The direction is clear, though. Each 25 basis point move today takes nearly three times as much from household income as it did in 1989, and the tightening since 2022 has taken more from household budgets than the 17% era. Treasury's historical data put household interest payments at about 10.5% of disposable income at the 1989 to 1990 peak (Treasury); by 2023 independent analysis showed repayments had already passed that level (MacroBusiness, citing AMP).

Answering the offset account argument

At the 29 September press conference, the ABC asked whether the RBA was underestimating how hard rate rises hit borrowers, given how much larger mortgage debt is now. The Governor's answer was that household debt to income levelled off from the mid-2000s, and has declined once offset account balances are counted, and that aggregate stress measures do not show widespread distress (RBA transcript).

That answer is accurate on average and misses the point:

• Offset balances are not evenly held. They sit mostly with established, higher-income and older borrowers. A family that bought in the last two years with a 5% deposit has little or nothing in offset. Netting one household's savings against another household's debt does not reduce the second household's repayments.
• The debt level has not fallen back. A plateau at around 185% of income is still nearly three times the 1990 level. Every rate rise is applied to that stock.
• The RBA's own data identify who is exposed. The October Financial Stability Review names recent and high-LVR borrowers, including 5% Deposit Scheme buyers, as the most likely to be in negative equity. These are the households the aggregate figure hides.
• Repayment burdens are high. The Governor herself put scheduled mortgage payments at around 10% of disposable income and rising, back to where they were at the peak of the last cycle.

Policy that is judged on averages will always look tolerable. The cost of this policy is not felt on average. It is felt household by household, concentrated among young families who did what government encouraged them to do.

What a rate rise actually does

A higher cash rate moves through five channels: mortgage cash flow, asset prices (housing wealth), the exchange rate, credit supply and expectations. In Australia the first channel is the most visible, because most home lending is variable and repriced within weeks. The ACTU estimates the four rises this year add about $460 a month to the repayments on an average mortgage (ABC). The Governor argues the exchange rate channel is the most important; a stronger dollar does trim import prices, but against an oil shock of this size it offsets only a fraction.

Against an oil shock, none of these channels touches the cause. Everything works by suppressing demand elsewhere in the economy until the overall price level stops rising.

Who pays, who gains

Australian households split roughly into thirds: owners with a mortgage, outright owners, and renters (approximate shares). Each experiences a rate rise differently.

This is the core of the fairness problem. A tool meant to reduce total spending raises the income of the group with the most capacity to spend. The net effect still slows demand, but only by pressing harder on borrowers to offset the boost to savers.

Where the money goes: a rate rise is a wealth transfer

When the RBA lifts rates, the money taken out of borrowers' budgets does not disappear. It flows to lenders, and through them to depositors and shareholders. On roughly $2.4 trillion of housing debt (approximate), each 25 basis point rise moves about $6 billion a year from borrowers to lenders and savers if fully passed on. Some of that is absorbed by bank funding costs, and CBA's margin actually narrowed slightly in FY26, but the direction is unmistakable: from younger, indebted households to older, asset-rich ones.

The same reduction in spending can be achieved with tools that send the money somewhere fairer.

That is the heart of the fairness argument. A rate rise asks the few to sacrifice and hands the proceeds to those who need them least. The alternatives ask everyone to contribute a little, and return the money to the people who made the sacrifice.

Supply shocks and the case for looking through

The standard central bank doctrine is to look through the first-round effect of a supply shock and act only if it feeds into wages and expectations. The RBA's argument in September is that second-round effects are already happening: liaison shows firms passing on costs, short-term expectations are elevated, and trimmed mean is stuck at 3.6%. That is a serious argument.

But there is no wage-price spiral, as the Governor herself confirmed. Where second-round effects are showing up, they are in prices set by firms, not wages set by workers. If that is the transmission path, then competition policy, margin surveillance and targeted price measures go straight at it. Rate rises reach it only indirectly, by crushing demand until firms lose the ability to pass costs on.

Scarring and generational cost

Unemployment is not a cost that reverses cleanly when rates come down. Rising unemployment is consistently associated in the research literature with poorer physical and mental health, family breakdown and higher rates of suicide. Young workers who enter a weak labour market earn less for years afterward; households forced to sell in a falling market lose deposits that took a decade to build; small businesses that close do not reopen. Youth unemployment is already 10.8%. The burden of an imported energy shock is being shifted onto the generation least able to absorb it, and the effects will outlast the shock.

The Governor makes a fair point that a rising unemployment rate does not always mean job losses; it can mean jobs growing more slowly than the labour force. For the young person who cannot find work, or the tradie whose next contract does not come, the distinction offers little comfort.

The lag problem

The Governor has said the full effect of rate changes can take 12 to 18 months to come through. If the oil shock eases in 2027, as several bank forecasts assume, today's hikes will be biting hardest just as the original cause disappears. That is how a supply shock turns into a recession.

4. Australia's history of managing inflation

Australia's best inflation outcomes came when monetary policy worked alongside an incomes and supply strategy; its worst came when interest rates were left to do the job alone. Figures below are approximate and drawn from the historical record.

What the record says

Three lessons stand out. First, the Accord years show Australia has done shared-burden inflation control before, and done it well. Second, the 1989 to 1991 episode shows what happens when the cash rate is asked to do everything: it works, but through recession, and it did so when households carried a third of today's debt relative to income. Third, the 2022 energy price caps and bill relief are a home-grown example of supply-side intervention reducing measured inflation directly, without adding to demand, at a time when the RBA was hiking anyway. They are the strongest local evidence that a second set of tools can take weight off the cash rate.

The 2023 Review of the RBA led to the new Monetary Policy Board (from 2025) and an amended Act that places the welfare of Australians at the top, with price stability and full employment as equal goals beneath it. That mandate is the hook for the reforms proposed later in this paper.

5. Global practice and alternative approaches

Most central banks are also raising rates in 2026 (the ECB and RBNZ both hiked in September), so Australia is not alone in reaching for the cash rate. Where other countries differ is in what sits around it: energy price mechanisms, windfall taxes, credit rules and mortgage structures that spread the load. The examples below are from the 2021 to 2024 energy crisis and earlier, and are drawn from the historical record (approximate).

The emerging thinking

Since 2022 a body of work has developed around what some economists call "strategic price stability" (associated with Isabella Weber and others): identifying the handful of systemically important prices (energy, fuel, food staples, rent, freight) that drive inflation in a supply shock, and stabilising those directly through buffer stocks, temporary price mechanisms and windfall taxes, while leaving the rest of the economy to the market. Central banks themselves have shifted too: the BIS and several governors have acknowledged that supply shocks are becoming more frequent (climate, conflict, deglobalisation) and that monetary policy alone is a costly response to them.

The common thread across successful cases is a division of labour. Government handles the supply shock and the distribution of its cost. The central bank handles persistent domestic demand pressure. Neither is left to do the other's job.

6. Emerging technologies and new tools

The cash rate is blunt partly because policymakers have historically lacked the data to do anything finer. That constraint has gone. Real-time data, AI and digital payments now make targeted, temporary and measurable interventions practical in a way they were not in 1990, which is why reliance on a single instrument is no longer defensible.

Real-time price and margin intelligence

The ABS already uses supermarket scanner data in the CPI, and the move to a full monthly CPI shows the appetite for faster data. The next step is continuous price and margin monitoring across fuel, groceries, energy and rents, combining scanner data, fuel price feeds, company filings and online prices. AI models can nowcast inflation weekly, separate cost-driven price rises from margin-driven ones, and flag sectors where price increases are outrunning input costs. That gives the RBA a clearer read on second-round effects and gives the ACCC evidence it can act on. It would also end the situation, raised at the September press conference, where the Board sets rates a day before the CPI it depends on is published.

Algorithmic pricing surveillance

More prices are now set by software that watches competitors' prices in real time. That can produce coordinated price rises without any explicit agreement. Competition regulators in the US and Europe have begun treating algorithmic pricing as an enforcement priority. An Australian equivalent, with powers to audit pricing algorithms in concentrated markets, would go straight at one of the channels by which supply shocks get amplified.

Targeted digital transfers

Australia's payments and identity systems (myGov, the New Payments Platform, Services Australia data) can deliver relief to specific households within days, means-tested and time-limited. Energy bill relief in 2023 to 2025 showed the mechanism works. The same rails could deliver temporary fuel or rent support to the households most exposed, without the leakage of across-the-board subsidies. The RBA's digital currency research (Project Acacia and earlier pilots) points to programmable payments that could make such transfers even more precise, though this is a longer-term option.

Energy transition as inflation insurance

Every household and business that runs on rooftop solar, batteries and electric vehicles is less exposed to the next oil shock. Australia imports most of its refined fuel, so the energy transition is also an inflation-stability strategy. Accelerating electrification of transport and freight, and building domestic fuel storage in the meantime, reduces the size of future shocks rather than reacting to them.

AI and productivity

AI cuts both ways. The RBA notes that AI-related demand is pushing up global technology prices and that the data centre build is adding to domestic capacity pressure now. Over time, the productivity gains should be disinflationary. Policy should aim to bring that payoff forward (through adoption support for small business and public services) while managing the build-out's short-term demand through planning and sequencing rather than economy-wide rate rises.

Housing supply technology

Modular and prefabricated construction can lower build costs and timeframes. With negative gearing now limited to new builds, there is a policy window to direct investment into faster, cheaper supply, which is the only lasting answer to rent inflation.

7. A fairer toolkit: the recommendations in detail

The goal is not to strip the RBA of its job but to stop making the cash rate carry every shock alone. Each recommendation below either attacks a source of inflation directly, spreads the cost of restraint more evenly, or both. Together they should let the RBA hold or ease rates sooner, with less unemployment and less damage to housing.

1. A Supply Shock Protocol, and a duty to speak up

The Statement on the Conduct of Monetary Policy should be supplemented by a published protocol for supply shocks. When the RBA judges that a material share of inflation comes from an external supply shock (energy, conflict, climate), Treasury commits to a set of non-stimulatory supply and price measures within a defined period, and the RBA commits to look through the first-round effect while it monitors second-round effects. Both publish their reasoning.

The protocol should also make it an explicit expectation that the RBA tells government and Parliament, in its statements and at Senate estimates, when its instrument is poorly matched to the shock it faces, and which complementary tools would reduce the cost to employment and households. A Governor should never again be in the position of saying the cash rate is the only tool she can think of, with no forum or expectation to say what else would help. This turns today's implicit tug-of-war into a visible division of labour, which itself helps anchor expectations, and it keeps independence intact: the RBA advises, government decides.

2. Fuel and energy price stabilisation, funded by those who gain

Build on the 2022 coal and gas price caps. In a declared supply shock, cap or smooth the wholesale price of fuel and energy for a set period, or subsidise an essential base level of household and freight use (the German model) while leaving full prices above it so the incentive to conserve stays. Fund it with a temporary windfall levy on profits above a set margin in fuel refining and importing, gas and coal exporting, and energy generation, as the UK and EU did. This lowers measured inflation directly, without adding net demand, and makes the winners from the shock pay for the relief.

The design rules matter: time-limited, targeted at wholesale or essential volumes rather than retail shelf prices, and backed by supply. Hungary's experience shows what happens when retail caps are imposed without supply.

3. A second brake: counter-cyclical superannuation contributions

This is the most important structural reform and the preferred alternative to further rate rises. It was put directly to the Governor at the September press conference. Her answer, correctly, was that it is not the RBA's decision. It is government's, and government should make it.

When demand needs restraining, the government temporarily lifts the compulsory superannuation contribution (for example by 1 to 3 percentage points, paid from wages or matched by employers within existing pay), and lowers it again when the economy slows. Variants of this idea have been put forward by several Australian economists over the years.

The effect is that every worker saves a little more for a period, rather than mortgage holders alone paying a lot more. The money is not lost: it sits in the worker's own super account, earning a return. Unlike a rate rise, it does not boost the income of cash-rich savers, does not crash house prices and does not push up the dollar. Because it reaches the whole working population, a smaller adjustment does the same demand work as a large rate rise. It would need careful design so lower-paid workers are protected (for example, by exempting income below a threshold or crediting the low-income super tax offset) and so it is administered automatically through payroll.

4. Let APRA carry more of the credit load

APRA already has the tools: serviceability buffers, limits on high debt-to-income and high LVR lending, and investor lending growth caps. Used actively, they slow credit growth and speculative demand directly. Tightening macroprudential settings when credit is the problem, and easing them when it is not, means the cash rate can sit lower than it otherwise would. It also targets new lending rather than punishing households who borrowed years ago.

5. Competition policy with teeth

Give the ACCC a standing price and margin monitoring role in concentrated markets (fuel, groceries, banking, energy, insurance), using real-time data, with the power to require explanations for price rises that outrun input costs and to publish findings. Strengthen the mandatory Food and Grocery Code, consider a prohibition on excessive pricing in highly concentrated markets (as several European regimes have), and give the regulator the ability to audit pricing algorithms. This goes after second-round effects at their source, rather than through unemployment.

6. Protect the households government encouraged into the market

For 5% Deposit Scheme borrowers who lose income, Housing Australia should offer a time-limited hardship facility: temporary payment deferral or interest-only periods, and a guarantee arrangement that lets lenders restructure rather than force a sale into a falling market. The government took on the guarantee; it should also manage the downside.

7. Index the tax brackets

Index income tax thresholds to wages or prices annually. Bracket creep is a hidden tax rise that hits hardest during exactly the periods when households are already squeezed. Indexation is fiscally neutral in real terms and removes an unfair interaction between inflation and tax.

8. Change how Australians borrow

Australia's reliance on variable-rate mortgages, combined with record debt levels, is the main reason the cash rate is so concentrated in its effects. A government-supported secondary market for long-term fixed-rate mortgages (similar in function to US mortgage agencies, delivered through Housing Australia) would let more households lock in for 10 to 30 years. Rate changes would then bite more on new borrowing and business investment and less on existing families, which spreads the burden and reduces the chance of forced sales.

9. Fuel security as inflation policy

Australia's fuel stockholdings have long sat below its international obligations (approximate). Building a genuine national reserve, adding domestic storage and accelerating freight electrification would reduce the size of the next shock. This is a slow measure, but it is the one that makes the others less necessary.

10. Distributional reporting and targeted relief

The RBA should publish distributional analysis alongside major decisions: who bears the cost by household type, age, tenure and region. That makes the welfare trade-off in its mandate visible and accountable, and moves the debate beyond aggregate averages that hide the households most affected. Where relief is needed, government should deliver it through myGov and Services Australia to defined groups (low-income renters, households with high fuel exposure in regional areas), with a clear end date and funded by measure 2, so it does not add to aggregate demand.

11. An emergency GST lever, with every dollar returned

A second broad-based option is an emergency GST lever: legislation drafted in advance that allows a temporary increase in the GST rate during a declared inflation emergency, reversed on a fixed date. Like the super lever, it withdraws spending across the whole economy rather than from borrowers alone. Unlike a rate rise, nothing is transferred to lenders. Every dollar collected would be quarantined in a dedicated account and returned to households as tax relief once the emergency has passed, timed by the same triggers that end it. The measure defers spending rather than taking money away, and the return of funds arrives just as the economy is slowing and needs support.

This is not the answer on its own. It is one of several tools that, together, would end the expectation that the RBA deals with inflation alone using a single blunt instrument. It also comes with real constraints, which is why the paper ranks it behind superannuation:

• It is regressive unless compensated. Lower-income households spend a larger share of their income, so a GST rise hits them hardest. It would only be fair with automatic compensation for lower-income households, delivered through Services Australia.
• It lifts measured inflation in the short term. A GST rise is a one-off price increase. The RBA would need to look through it, as it did when the GST was introduced in 2000, and the change would need to be clearly temporary so expectations hold.
• It is slow to change. Altering the GST rate requires federal legislation and the agreement of the states and territories. The Governor herself has noted that tax changes are not a nimble way to address inflation (ABC). That argues for legislating the mechanism and its triggers in advance, not for ruling it out.

Designed this way, the GST lever becomes a temporary, compulsory saving made by every household, held in trust and handed back, instead of a permanent transfer from borrowers to lenders.

What this means for the RBA

With these tools in place, the RBA's role becomes narrower and more defensible: respond to persistent domestic demand and expectations, look through first-round supply shocks under the published protocol, speak openly about what its instrument can and cannot do, and weigh the employment and welfare cost of each move explicitly, as its Act requires.

8. Risks, counter-arguments and trade-offs

A paper that argues for change has to take the case for the current approach seriously. The strongest objections, and the responses to them, are below.

The real risk is doing nothing differently

If the oil shock persists and the RBA continues to rely on rates alone, the likely path is further hikes towards 5%, unemployment moving toward 5% or above, a deeper housing correction concentrated on recent buyers, and a recession that arrives just as the external shock fades. The Governor herself conceded at the September press conference that a recession is possible if inflation expectations slip. If the shock eases instead, today's hikes will still be working through the economy for another year or more. Given today's debt levels, either outcome does more damage to households than the same policy would have done in any previous cycle.

9. Conclusion

Australia does not have to choose between controlling inflation and protecting the households, jobs and young families that the current approach is wearing down. The cash rate is a legitimate tool for persistent domestic demand pressure. It is a poor lead tool for an oil shock, a climate-driven food shock or margin expansion in concentrated markets. At today's debt levels its costs are heavier than in any previous cycle, they fall on the people least able to bear them, and they reward those with cash to spend.

The fix is a division of labour. Government meets supply shocks with supply and price measures funded by those who profit from the shock. A counter-cyclical super contribution and APRA's credit tools give policymakers brakes that spread the load. The ACCC is given the data and powers to stop shocks becoming cover for price gouging. Mortgage finance is restructured so rate changes stop landing on one group. And the RBA, expected to speak openly about the limits of its instrument and freed from carrying everything, can move earlier, less often and less violently, in line with a mandate that puts the welfare of all Australians first.

Australia has done this before. The Accord years and the 2022 energy caps both show that shared-burden inflation control works here. The intelligence and data to do it well now exist. What is needed is consideration, consultation and communication between our institutions, and the leadership to make a fairer framework the standing approach rather than an emergency exception. The generation that lived through 1989 to 1992 knows what the alternative costs.

Open questions for further work

• Modelling: how large a super contribution change is equivalent to a 25 basis point rate move?
• What margin threshold should trigger a windfall levy, and on which sectors?
• How many 5% Deposit Scheme loans are currently below the sell-and-clear threshold, by region?
• How are offset account balances distributed by age, income and loan vintage?
• Current fuel stockholding against Australia's IEA obligation.
• An updated household interest-and-principal burden series for 2026, to sharpen the comparison with 1989.

Sources

Current data accessed 3 October 2026. Historical figures in sections 3 to 5 are approximate and drawn from the public record; they should be checked against primary sources before publication.

• RBA, Monetary Policy Decision, 29 September 2026
• RBA, Media Conference transcript, 29 September 2026
• RBA, About Monetary Policy (objectives under the amended Act)
• RBA, Statement on the Conduct of Monetary Policy
• RBA, Financial Stability Review, October 2026
• ABS, Consumer Price Index, August 2026
• ABS, media release: CPI rose 4.0% in the year to August 2026
• ABS, Labour Force, August 2026
• HCA Magazine, Wage Price Index June quarter 2026
• Treasury, The household balance sheet in Australia
• The Urban Developer, household debt to income, citing RBA
• MacroBusiness, household repayments versus 1990, citing AMP
• ATO, negative gearing and CGT reforms
• PropertyGo, negative equity and the 5% deposit scheme
• The New Daily, unemployment and the September decision
• ABC, RBA decision live coverage, 29 September 2026
• CBA, FY26 results announcement
• Reuters via Metrobank, Strait of Hormuz disruption
• US BLS, CPI August 2026