The Abbott government has finally decided to dump the idea of a bank levy, two years after it was first proposed by the former Labor government.
The decision will amount to a $1.5 billion hit on the budget, even though the impost that was supposed to fund a bank in times of trouble was never legislated.
That's because both sides of politics included the tax's potential revenue, due to start on 2016, in their budget figuring.
"Labor's bank deposit is dead," Prime Minister Tony Abbott told reporters in Canberra on Tuesday.
Treasurer Joe Hockey said it would have been a tax on savings that would have affected everyone with a bank account.
"Now is exactly the wrong time to apply such a tax to bank accounts, when people are receiving lower returns than they may have expected in the past," Mr Hockey said.
The government's financial system inquiry chaired by former banker David Murray made a recommendation not to proceed with a bank deposit tax, while asking banks to significantly increase their capital.
"In the last few weeks, a number of banks have raised between $2 billion and $5 billion of new additional capital. They may need to raise further capital," Mr Hockey said.
Political opponents said the timing of the announcement was made to show there is unity between Mr Abbott and his treasurer after reports the prime minister was being urged by some cabinet members to dump Mr Hockey, a suggestion that has been dismissed as "gossip".
Shadow treasurer Chris Bowen said the treasurer had been rolled by his colleagues because just in April he was making a case for the levy.
"Now it's a bad idea again because the Abbott government is desperate for a distraction," Mr Bowen said.
Greens treasury spokesman Adam Bandt said the treasurer had caved in to the big banks and blown another hole in government revenue.
"Has the public lost billions in revenue just so a prime minister and treasurer under pressure could appear smiling together in front of the cameras?" Mr Bandt said.
But banking organisations welcomed the decision.
"The government have moved to protect mum and dad savers and retirees from the unnecessary tax," Australian Bankers' Association executive director Tony Pearson said in a statement.
Customer Owned Banking Association boss Mark Degotardi said savers were winners from the announcement.
"The government's decision is pro-consumer and pro-competition," he said.
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