The government estimates the levy, which amounts to 6 basis points on all major-bank liabilities excluding additional tier-one instruments and most deposits, will raise A$6.2 billion (US$4.7 billion) over four years.

Budget papers say the levy “will include items such as corporate bonds, commercial paper, certificates of deposit, and tier-two capital instruments” but not additional tier-one securities or “deposits of individuals, businesses and other entities protected by the Financial Claims Scheme”.

The budget papers do not contain any information about whether – or how – the levy will be applied to off-balance-sheet liabilities such as securitisation.

Only banks with licensed-entity liabilities of at least A$100 billion as at 1 July 2017 will be subject to the levy – meaning ANZ Banking Group (ANZ), Commonwealth Bank of Australia (CommBank), Macquarie Bank, National Australia Bank (NAB) and Westpac Banking Corporation (Westpac). The threshold will increase in line with GDP growth in future years.

Australia’s big-four banks have attacked the levy. All four majors published submissions made to Treasury on 15 May, in which they set out a raft of complaints and proposed changes to the levy.

The submissions do not pull their punches. The CommBank response, signed by the bank’s chief executive, Ian Narev, describes the levy as “bad policy”. NAB’s submission, signed by its chief financial officer, Gary Lennon, uses different wording but an identical sentiment as it describes the levy as “poor policy”.

However, CommBank’s letter says: “We are committed to working constructively with the Treasury to ensure that, even if this is bad policy, it is implemented as well as possible.”

All four banks complain about the lack of consultation and limited time given to work through the consequences in detail. CommBank says the banks were informed about the forthcoming levy announcement on 4 May. NAB says being asked to provide written feedback in just two business days is “highly unusual and reflects poorly on Australia’s public policy making process”.

A letter to Treasury signed by Peter King, chief financial officer at Westpac, adds: “Westpac is concerned at the rush with which the levy is proposed to be passed into legislation and the lack of a thorough consultation process.”

According to CommBank, the rationale for the levy as explained to the banks in their meeting with Treasury is fourfold. At this meeting, CommBank’s letter says, the banks were told the levy would help return the federal budget to surplus, complement other measures designed to ensure the major banks are unquestionably strong, level the competitive playing field in the Australian banking sector and implement a fair charge for the implicit sovereign guarantee on the majors.

The majors use their submissions to attack every aspect of the levy’s rationale. On deficit funding, the majors’ biggest concern appears to be the potential for the levy to become a way for government to generate revenue from an unpopular sector on a permanent basis, thus avoiding the political pain of having to raise taxes elsewhere.

“It is not appropriate for the levy to become an ongoing tool for governments to fill budget gaps at the expense of the banking industry, or indeed other industries in the future, and through them ordinary Australian taxpayers,” the CommBank letter argues.

The banks also question the veracity of the claim that the levy is primarily aimed at deficit repair, based on the suggestion that it is not intended to be a temporary measure. Indeed, CommBank notes that it “has been advised that the levy is to be permanent”.

The idea that the major-bank levy effectively institutes an appropriate payment for the implicit sovereign guarantee on the big four is used by some of the banks to question the form and implementation of a total loss-absorbing capacity (TLAC) regime in Australia.

“Given the government has stated that the new tax reflects a charge for the perceived benefit that major banks derive from an implicit government guarantee, it would be appropriate to rethink the need for any new bank loss-absorption framework in Australia,” says ANZ’s response letter, signed by chief executive, Shayne Elliott.

Westpac’s comment on TLAC is somewhat more guarded, but it also raises questions about the interaction of a bank levy as a pseudo guarantee fee and a TLAC regime designed to reduce or remove the need for government support.

“Based on the budget announcement it is unclear how the interaction between the levy and TLAC has been considered from a policy perspective,” Westpac’s response suggests. “Westpac submits that should TLAC be introduced in Australia the levy will need to be reviewed.”

The majors also reject the claim that the bank levy will improve the competitive landscape in Australia’s banking sector. They note the unfair advantage that will accrue to international players in the Australian market – these banks will not be subject to the levy.

ANZ’s response says: “The current proposal gives large foreign banks a significant competitive advantage over major Australian banks in domestic and offshore markets across a range of institutional banking products and services. ANZ recommends the new major-bank tax should be applied to the domestic liabilities of all banks operating in Australia with global liabilities above A$100 billion.”