The Federal Government is already facing a potential $2 billion hole in its budget forecasts, after the big four banks released their estimates of how much the new bank levy would cost them.

Key points: Government plans to raise $6.2b in revenue from bank levy

Government plans to raise $6.2b in revenue from bank levy Big Banks estimate levy will cost them around $4b over next four years

Big Banks estimate levy will cost them around $4b over next four years $2b shortfall means Government may lift tax rate

The Government's plan is to raise $6.2 billion in revenue over the next four years from the big four banks and Macquarie by imposing a 0.06 per cent (or 6 basis points) tax on some of their liabilities.

This means it will need to levy at least $1.5 billion per year from CBA, Westpac, NAB, ANZ and Macquarie Bank to achieve that target.

However, the big four banks have now disclosed that, collectively, the new levy will only cost them $965 million per year (after company tax deductions).

The individual breakdowns, from highest to lowest, are Westpac ($260 million after tax), NAB ($245 million), ANZ ($240 million) and CBA ($220 million).

This equates to a shortfall of around $535 million per year - which ends up being $2.1 billion less than what the Government plans to raise in the next four years.

Macquarie Bank has not yet released estimates on how much the levy will affect its profit, but is unlikely to have a bigger tax bill than the big four banks.

"The banks' disclosures seem to confirm our view that a levy of 6 basis points would not raise enough to meet the Government revenue-raising objective," investment bank Morgan Stanley stated in its research report about the big four banks' estimates.

"In fact, we believe the levy may only raise approximately $1 billion in its first full year."

However, rather than accept the budget hit, Morgan Stanley expects a higher tax rate to be announced.

"We assume that the levy will ultimately be raised to meet the Government's revenue objectives, but that loan and deposit re-pricing will partly offset it," it wrote.

Morgan Stanley also warned about possible flow-on effects from the levy.

A key risk is slower housing loan growth due to mortgage rate increases, putting more pressure on household finances, and increasing the number of home loan defaults.

Another danger is that banks will reduce the amount of funds they set aside to cover loan losses and deposit withdrawals in order to help cover the cost of the levy.

In addition, Morgan Stanley also warned there may be increased risk of further regulation, which could impact the outlook for bank profitability.

Last week, the investment bank downgraded its forecast of the big banks' 2018 and 2019 full-year profits by around 2 per cent on average.

The bank levy bill has not yet been introduced to Parliament. However, it has released a secret draft bill to certain senior executives of the big banks, on the condition that they signed confidentiality agreements. It is this draft on which the banks have based their estimates.

The Government is aiming for the bank levy legislation to be in force from July 1.