Google also knows your Google account password. If you can decrypt the data using any deterministic function of your Google password, then so can Google, so there's no additional security gained. They probably already store your wifi password encrypted -- it's just when the device asks for it, Google decrypts it and sends it back to you. So in all likelihood, they're already doing what you want.
They could have done it by asking the user to provide a new unique password that would have to be entered on each new device. That would provide additional security as only the device could decrypt the password. However, (a) because such a password would only be used once or twice a year at most, no one would remember it and the whole feature would be useless, and (b) you still have to trust Google to not send the password after the device decrypts it, and if you trust the OS vendor to not backdoor the OS, you might as well trust them to not backdoor their own servers to access the same data.