The Abbott government has dumped a Labor initiative to impose a bank deposit levy. The decision will amount to a $1.5 billion hit on the budget.
"Labor's bank deposit is dead," Prime Minister Tony Abbott told reporters in Canberra on Tuesday.
Mr Abbott said it was very important Australia's banks were safe and secure and the best way to ensure that was through a good prudential regulatory system.
"The last way to make our banks strong, the last way to protect depositors, is to hit banks with more taxes," he said.
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 told reporters.
Two years ago Labor announced the proposed levy from 2016, and included the potential savings in its budget figuring.
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.
"Therefore, it is exactly the wrong time to proceed with this sort of tax."
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