Large foreign banks should also be subjected to the proposed $6.2 billion bank levy, Australia's four major banks told the Senate Standing Committee on Economics reviewing the levy Bill last week.
Many multinational banks, while active in the institutional banking market, are increasingly expanding into retail banking either directly or providing funding to third parties, Westpac Group chief financial officer Peter King said.
The Bill should be amended to capture major foreign banks based on group liabilities if this exceeds $100 billion booked within Australia, ANZ said in its submission.
ANZ discouraged applying the levy to its offshore branches as it will "also increase the costs of Australian banks that seek to compete overseas."
ANZ's UK operations for example, is already subject to the UK banking levy (if local liabilities exceed £20 billion) and will pay the bank profit surcharge (if taxable profits exceed £25 million). Together with the Australian bank levy, there is the risk of double taxation, it said.
NAB estimates the levy will cost about $350 million annually, or $245 million post-tax. It hasn't determined how it will manage the costs, but made it clear it will be borne by customers, shareholders, suppliers, and employees.
The major banks also argued a sunset clause should be introduced, given the purpose of the tax was to help return the budget to a surplus, the levy should be removed once a surplus is reached, they said.
Conversely, the Customer Owned Banking Association chief executive Mark Degotardi told the Senate committee the levy was a "modest step" towards reducing the unfair funding cost enjoyed by the major banks.
The perception that the major banks are 'too big to fail' is a problem that tends to get worse over time as the funding cost advantage creates incentives for them to become even bigger and more complex, Degotardi said.
He urged the Government and APRA to "act with greater urgency" in implementing the recommendations.