The Turnbull government has declared war on the big banks.

In last week's budget the government announced it would hit the banks with a new tax to help pay down government debt and achieve a surplus.

The Major Bank Levy will hit Australia's five largest banks and raise A$6.2 billion over the next four years.

Along with a new Bank Executive Accountability Regime, that requires bankers to be "registered" and restricts their pay, it represents an unprecedented attack on the banking sector.


Banks were blindsided by the tax, which tellingly has the support of both the Labor and Greens parties.

It is hard to see this as any more than an easy hit on an easy target. Australians don't like banks. They are perceived as rapacious and unethical money grubbers, who will gouge customers any chance they get.

The characterisation isn't without some truth and the scandals of bank financial planners saddling customers with loans and investments they can't afford and bank money dealers rigging interest rates haven't done anything to improve their reputation.

Yet what appeared to have been a sure fire political winner - give the banks a whack! - looks as if it might backfire on the government. Most Australians whether we like it or not, have an interest in strong, well performing banks.

Almost all of own bank shares as a sizeable part of our superannuation retirement savings, even if we don't own them directly. Many of us also have mortgages, so want our banks to be as competitive as possible.

And of course, there is the stability of our financial system and economy, in which the banks play a major part. We shouldn't forget that as banks in Europe and North America were collapsing during the global financial crisis, Australia's banks remained strong.

The A$6.2 billion the government will take from the banks in the next four years won't come from nowhere - somebody will have to pay.

That somebody will end up being most Australians. Banks will return lower profits and dividends and hence hit shareholders. They will also try to recoup the tax with higher fees and interest charges, which will hit customers. (Morrison has promised that the competition watchdog will ensure they don't hit customers to pay the tax, but realistically, how will it unpick those higher rates and charges which are a result of the tax and those which are due to normal commercial considerations? He has also told people to go to smaller banks, which aren't subject to the tax.)


Westpac chief executive Brian Hartzer said the tax would reduce the retirement savings of millions of people and hurt customers. "This levy is a stealth tax on their life savings, the shares in their superannuation accounts and it will make Australia's banks less competitive," he said.

Investors have also had their say on the tax, with bank shares ending the week down sharply.

Bank executives suspect that the levy was only dreamed up a week before the budget, and given how little detail government officials have been able to provide about the new levy, they might be right.

At a two-hour meeting between bank executives and Treasury officials last week after the budget, the officials were unable to answer most of the questions the banks asked them about the workings of the tax. In fact, it seems that the officials didn't know exactly what will be taxed under the new levy.

What does seem apparent is that the levy will tax what is known as Tier 2 capital, which acts as an additional layer of loss protection to help shore up the banks in the event of a crisis. The levy is in effect an incentive to reduce Tier 2 capital, at the same time as the banking regulator is encouraging banks to increase its levy. If anything, the tax will make our banks less secure.

Along with the levy, the government announced a Banking Executive Accountability Regime, which will require all senior banking executives to be registered with the Australian Prudential Regulation Authority.

The regime represents an unprecedented interference in the executive pay of private sector employees. Banks will be required to defer a minimum of 40 per cent bank executive's variable remuneration - and 60 per cent for certain executives such as the CEO - for a minimum of four years to ensure executives are more accountable and focus on decision-making for long-term outcomes.

Hitting the banks with a whopping tax is lazy and expedient policy. It's not pushing people and businesses to work more efficiently and allocate resources to more productive parts of the economy. It's just a tax.

It is also a concern to the broader business community. It is a worrying precedent that the government is prepared to hit an unpopular yet profitable sector with a hefty new tax because it is an easy target.