Australia's largest banks have urged senators to consider major changes to a proposed $6.2 billion levy, but the smaller players have backed the tax as a way to level the playing field.
The big four banks accept the tax will pass parliament but want amendments, including a sunset clause on the legislation when the budget returns to surplus, and for the levy to be imposed on foreign banks as well.
"The Australian government should not create tax policy which systematically and deliberately advantages banks based in the United States, Europe, Japan and China at the expense of its domestic industry," Commonwealth Bank general counsel Anna Lenahan told senators in Canberra on Friday.
Officials from Westpac, the ANZ and NAB all expressed concerns about the levy eroding their competitiveness, while warning the cost could not be absorbed.
The levy will apply to five big banks with total liabilities over $100 billion from July 1, with the proceeds applied to budget repair.
Treasurer Scott Morrison was quick to swat down the proposal for a sunset clause, saying the bank levy was a structural rather than a temporary measure.
"When we return to balance, as we're projected to do in 2021, the bills don't stop there. That's why the tax doesn't stop then. We need to get back into balance, and stay in balance," he told reporters in Sydney.
The big banks also want a mechanism to suspend the levy if a bank is under financial stress, and are calling for an independent review of the levy after two years.
Labor supports the levy but calculates that based on figures released by the banks, the revenue raised will fall roughly $2 billion short.
"I guess that does raise the question about whether the treasurer is intending or has always intended to lift this levy at some point in the future," Labor senator Katy Gallagher told reporters in Canberra.
The opposition is among those calling for the release of Treasury modelling underpinning the policy.
Macquarie Bank - the fifth in the mix - does not believe it should be slugged by the levy, given it holds less than two per cent of the national mortgage market and less than 1.5 per cent of the credit card market.
But the smaller banks - including the Bendigo and Adelaide, ME and the Customer Owned Banking Association - argued the big players enjoyed a huge advantage in a highly concentrated market.
They said there was a difference in funding costs due to the larger institutions' "too big to fail" status, while regional and customer-owned banks had to hold much more regulatory capital against mortgages.
"There's an explicit benefit being accrued to those major banks from implicit guarantee," ME Bank chief Jamie McPhee told senators.
Australian Bankers Association chief Anna Bligh criticised the Turnbull government's "truncated" approach to developing the levy, and said taxing the big banks based in part on their success was a worrying trend.
"The proposed new tax is an additional cost of doing business and it must be borne by savers, borrowers, bank employees or shareholders," Ms Bligh told senators.
The legislation is expected to clear parliament next week.
