ABA CEO Simon Birmingham transcript of interview on ABC Melbourne with Ali Moore

E&OE
Radio Interview
ABC Melbourne
5 February 2026.

Topics: Interest rates; Customers ahead on mortgage repayments

Ali Moore (Host): I want to look next, though, at the interest rate increase. The argument is that, yes, it’s a blunt instrument, but it is the only instrument the Reserve Bank has. And right now, they say that inflation that prices are running too high, and that is because demand is too high. So they’ve hiked the interest rate by a quarter of a percent to try and dampen that spending, but that really only works if it affects people. So what happens and what does it mean if most Australians are actually ahead with their mortgage, and they won’t feel the increase? Simon Birmingham is the CEO of the Australian Banking Association and a former Finance Minister in the Liberal government. Simon Birmingham hello.

Simon Birmingham (Guest):  Hello Ali, good to be with you again.

Ali Moore: This wasa really surprising figure for me when I read an opinion piece that you wrote. The banks are saying that there are around 85 per cent of mortgage holders that are currently ahead on their repayments, and one in three over two years ahead.

Simon Birmingham: That’s right Ali, certainly Australians overwhelmingly are very responsible when it comes to their home finances. Treat them with care and do try to get ahead where they can. A couple of factors that are driving this type of data. For some we can go all the way back to COVID and the pandemic, when we saw certainly a significant jump in household savings that occurred across Australia. There’s a period of time there where the ability to spend was reduced for people, where incomes built up more strongly than people expected, thanks to government measures and other supports that were put in place at the time so that saw some people get ahead. Other factors have also influenced that. That for many people, when rates went down on three separate occasions last year, they essentially had a choice to opt in to getting that rate cut and reducing their monthly repayments under the terms with their bank, or to keep paying the same monthly amount and to get a little bit ahead in their mortgage. And lots of Australians, the majority, from the data we can tell, essentially, kept making the same monthly repayment and just got that little bit ahead in their mortgage.  

Ali Moore: So does that mean that, with the higher rate, their bank will not be adjusting their repayments until they sort of finish off using their buffer.

Simon Birmingham: It means that if you were essentially continuing your monthly repayments at a higher rate than was necessary, you won’t necessarily see a change to those monthly repayments now. Now, I should caveat that, of course, by saying everybody should look at their individual terms with their bank and the like. But if you were paying more monthly than was necessary, and rates don’t go above that point that you were paying at, then you may well see your monthly repayment stay the same.

Ali Moore: So what does that mean? And you’ve been a finance minister, so I know you know a little bit about the relationship with the Reserve Bank and and you know what the aims and their targets are. What does that mean for that bid to try and dampen demand and dampen spending? If 85 per cent of people, in theory, if they’re ahead on their mortgage, they’re not going to notice any difference, so they’re not going to necessarily change their spending pattern.

Simon Birmingham: There are a couple of things there. And firstly, of course, not everybody is in that 85 per cent and for some they’re only a little bit ahead. Yes, more than one in three might be more than two years ahead, but for some it is only marginal. And so always recognising that there are people where every dollar definitely matters, where it is tough when decisions like this are had. And if you’re in that circumstance where you think you may be struggling with repayments now or into the future, the biggest message I have is go and talk to your bank sooner rather than later.

Shop around for those who can. But if times are tough, engage quicker, because that way measures might be able to be put in place to help you. But in terms of from the Reserve Bank perspective, yes, it’s always acknowledged that monetary policy, the adjustment of the official cash rate, is a somewhat blunt instrument. It’s the most powerful instrument they have, but the messaging attached to it is also seen as incredibly important for how that drives thinking.

And so, the fact that the RBA is also telegraphing the potential for further rate hikes, has indicated that inflation stays above their target band throughout the course of this calendar year, which increases the chance of those further rate hikes. And that also is a message that for many Australians will see them think, well, I might just be a little bit ahead, but I still need to be careful and cautious.

Ali Moore: Do you think, though, and this is sort of guessing, taking your Australian Banking Association hat off to a certain extent. But one of the things that was really raised earlier this week from listeners, was is the system that we currently have, the system of interest rates, the system of mortgage holders being the ones who are affected, is it still fit for purpose in 2026? A remit of inflation between two and 3% and a single tool to control it. I just wonder whether, as a former finance minister, you could see a more efficient way of actually trying to dampen spending. I mean, some of the things that people suggested to us is, well, why not increase the GST, not on essentials, but on other spending. And then you really would get the people who are spending. You’re not necessarily getting the people who have got a mortgage and who are already struggling.

Simon Birmingham: Well Ali, I may be a former finance minister and now CEO of the Banking Association, but I don’t hold myself out to be one of Australia’s most learned economists, but to respond to your question the intersection between fiscal policy, how government taxes and spends, and monetary policy, how the Reserve Bank sets interest rates, that is a critical interaction, and you can absolutely reduce spending across the economy by increasing taxes or by governments reducing spending by getting budgets closer to balance, is a factor there that when budgets are in deficits, that by default means government is putting more money into the economy as a result of that deficit spending. So, they are all factors that all governments should weigh, and have weighed through the years.

Again, they are hard to target at times easier sometimes to target in points of stimulus. And we’ve seen that at different junctures when the economy is looking weak and government has wanted to stimulate, you have both the Reserve Bank reducing interest rates and quite targeted stimulus payments going out. Harder in times when you’re seeking to slow inflation and contract to undertake quite the same degree of targeting from government policies. But they can, and they are options for both state and federal governments to look at their spending, their tax and their balancing of the budget.

Ali Moore: Interesting, I’d love to hear from people, if they are in that category, who have well ahead in their mortgage, whether the interest rate rise actually does change their spending behaviour. Simon Birmingham, good to talk to you. Thank you.

Simon Birmingham: Always a pleasure Ali. Thank you.

Ends