The federal government will prop up the budget bottom line with...

The federal government will prop up the budget bottom line with a new levy on banks that will be badged as providing insurance in case future bailouts are needed.

The Australian Financial Review has learned that the government’s economic statement, set to be released Friday, will contain a deposit insurance levy as recommended by the Council of Financial Regulators, which will raise funds to underwrite any Australian bank should it need assistance in the future.

The proposed levy would be between 0.05 per cent and 0.1 per cent. Presently, the government guarantees deposits up to $250,000 without charging the banks.

A senior source said the levy would build up funds “over time” and would take several years to reach the billions. He said it would raise less than $1 billion over the forward estimates but build over the outer years.

The revenue raised by the levy will also be added to the budget bottom line, helping the government offset a forecast plunge in revenues since the May budget and meet its target of returning to surplus in 2016-17.

“It won’t fix the surplus problem in itself but it will help,’’ the source said.

The source said while the money collected would count as revenue, should the fund ever be drawn upon it would count as expenditure.

BANKS UNHAPPY
The banks are understood to be unhappy about the proposal and Treasurer Chris Bowen, who has been consulting the sector about the move, will meet again Thursday with the Australian Banking Association.

At a press conference Thursday morning, the Treasurer said “we have no plans to tax banks’’.

But he said the government was in discussions with banks about financial regulation.

“Of course we’re in discussions with banks about various matters in relation to financial regulation and financial services, consulting with them about recommendations that have been made by the financial regulators and that consultation will continue,” he said.

One big bank has warned the levy would be passed on in the form of reduced interest payments on deposits.

Mr Bowen also confirmed the details of the tobacco tax increase. Starting on December 1, tobacco excise will increase by 12.5 percentage points a year for 4 years, raising $5.3 billion over the forward estimates.

Mr Bowen said the increase would be both a revenue and health measure.

ABBOTT WAITS FOR STATEMENT
Opposition Leader Tony Abbott said he did not want to comment on specific mooted elements of the economic statement until it was available in its entirety.

“The fundamental point is we will respond to the government’s economic statement when we see the economic statement. We are not going to respond piecemeal to rumoured or individual items that may or may not be in it.

“This is a government that cannot control its spending and because it can’t control its spending whenever it gets into trouble, it hits you the Australian people with more taxes and all of it, whether it’s a bank deposit tax, an increase in cigarette tax, it’s a tax on you the people.

“If they do this to you before the election, just think how bad it will be after the election.”

Mr Abbott declined to say whether he would repeal the increase to the cigarette excise but insisted it was not a health measure as portrayed by the government.

“Know what this is, this is just another tax,” he said.

“It’s a revenue measure. It would only be raising $5 billion or so if people continue to smoke so let’s not listen to this palaver about health.”