Treasurer Scott Morrison's surprise multi-billion levy on big banks has drawn a furious response, with the banking industry group slamming the measure as a direct attack on the economy that will hurt investment.
Australia's five biggest banks have been slugged with a $6.2 billion levy over four years plus a suite of stepped-up controls and penalties for executives in the name of fairness and accountability.
The big four banks of Westpac, ANZ, Commonwealth Bank and National Australia Bank, plus Macquarie Group are hit by the levy.
Mr Morrison framed the measure as "an additional and fair contribution from our major banks", saying it was similar to measures in other countries and would even up the playing field for smaller banks.
However Australian Bankers' Association chief executive Anna Bligh said there had been no consultation with the industry ahead of the shock move.
"This new tax is not a well thought out policy response to a public interest issue, it is a political tax grab to cover a budget black hole," Ms Bligh said.
Ms Bligh said the move sent the wrong signals to global financial markets about the strength and stability of the banking sector.
Banks with liabilities of more than $100 billion will be slugged 0.06 per cent on those liabilities each year from July 1.
The revenue will be directed towards budget repair, the treasurer said.
Everyday customer deposits are not included in the liabilities, and the levy will not apply to superannuation funds or insurers.
Speculation about a new tax on the banks triggered sharp falls in their share prices ahead of the release of the budget on Tuesday, wiping about $14 billion from their collective market value.
Ms Bligh said the levy will do nothing to improve conduct and culture in the industry.
Preliminary modelling from business advisory PwC shows that if the levy is passed on through higher rates and fees, it could reduce gross domestic product by around $2.5 billion over the next four years, and result in approximately 6,200 fewer jobs.
The government is also boosting funding for financial industry watchdogs by more than $50 million over the coming four years as it gives them extra powers and introduces a new system for customer complaints.
That funding will come from increases in existing levies on the banks.
The Australian Prudential Regulation Authority (APRA) will be able to remove and disqualify executives that hide misconduct, and ensure at least 40 per cent each executive's pay is linked to more than short-term performance.
APRA will also have a closer eye on the industry, with all executives required to register with the watchdog and outline their role and responsibilities.
The reforms follow a string of financial misconduct scandals in recent years, and calls from the federal opposition for a royal commission into the financial industry - a measure the Turnbull government has resisted.
