Finance Minister Mathias Cormann insists the four big banks have no legitimate reason to pass on the cost of a new levy announced in last week's budget despite a widespread view they will do so.
Furious banking executives have criticised the federal government and warned they will pass on the costs of the surprise 0.06 per cent levy on bank liabilities - also being called a tax - forecast to raise more than $1.5 billion per year over the next four years.
The fact that the four major banks between them have generated about $30 billion a year in after-tax profits in recent years indicated that $1.5 billion was not an excessive contribution to make towards budget repair, Senator Cormann told a WA Chamber of Commerce and Industry business breakfast.
That the levy was not applied to smaller banks improved their competitiveness, hopefully giving people other options and keeping the big banks honest if they increased the price of their mortgages, he said.
"We do have an issue in Australia in terms of competitiveness in the banking sector; this doesn't address it fully but it certainly is a step in the right direction," Senator Cormann said.
Consumer watchdog, the ACCC, has also been instructed to monitor the big banks' activities on consumer pricing.
"The reason they are major banks and have a dominant, profitable position in the Australian market is a large degree due to government regulations and because of government explicit and implicit guarantees," Senator Cormann said.
"There's value to those guarantees for which they don't pay a price."
