The bank tax was the big surprise package of the budget. It certainly blindsided the banks and their owners, the shareholders.
For the bank lobby it was a "reckless move" which could undermine the entire banking system.
For the Government it is part of a broader package to address widespread community concern about the banks' behaviour, while helping to pay for some big new promises in the budget.
But how will it work and who will wear the cost?
Which banks are affected?
The new tax will only apply to banks with liabilities of at least $100 billion. This means only the Big Four Commonwealth Bank, National Australia Bank, Westpac and ANZ plus Australia's fifth biggest lender, Macquarie.
How does it work?
The new tax or levy is a tax on each banks' liabilities and is calculated quarterly at 0.015 per cent which gives an annual rate of 0.06 per cent.
The levy only applies to 'riskier' borrowing that banks use to fund their lending, like corporate bonds, commercial paper, certificates of deposit and what's called Tier 2 capital (which includes revaluation reserves, hybrid capital instruments and subordinated term debt).
Importantly it does not apply to people's deposits (below $250,000) or Tier 1 capital (which include shareholders' equity and retained earnings).
How much will it raise?
It is expected the levy will raise between $1.5 billion and $1.6 billion each year, for four years. So roughly $6.2 billion in the forward estimates.
Who pays?
The Australian Bankers Association says the cost will come from one of two places: customers or shareholders.
The banks will either pass the added costs to customers by lowering the interest they give to depositors or by raising the interest rates they charge borrowers.
However, the Government will be hoping competitive pressure from the smaller banks will stop this from occurring.
Who wins?
Because the levy will only be placed on the Big Four plus Macquarie, the biggest winners are likely to be the smaller banks which compete with them for business.
