The South Australian Government has dumped its controversial levy on the five major banks, declaring it will not pursue the budget measure and will not take it to the March election.

Premier Jay Weatherill made the declaration minutes before the state's Legislative Council was due to vote and reject the budget measure for a second time.

The Liberal Party, Australian Conservatives and Advance SA MP John Darley had all committed to blocking the tax, which had also divided public opinion.

Mr Weatherill said the levy, which was announced in this year's state budget and would have raised $370 million over the next four years, faced no real prospect of success in this parliament or the next, with Nick Xenophon's SA Best Party also opposed to the measure.

"The bank tax is dead," Mr Weatherill said.

"We've taken the fight up to the big banks but with Steven Marshall taking the side of the banks over the people of South Australia this has no chance of getting up.

"While Steven Marshall and Nick Xenophon side with large corporate interests, I will always stand up for South Australian small business."

Decision blows huge budget hole

The Premier and Treasurer revealed the bank tax policy in this year's state budget. ( ABC News: Malcolm Sutton )

The decision to ditch the tax, which mirrored the Federal Government's levy on the major banks, leaves the state budget with a $370 million hole over the next few years.

The Government had previously linked a series of job creation measures contained in the budget to the revenue from the banking levy.

Mr Weatherill said the Government would now revise its Budget Measures Bill and would continue to make job creation a priority.

"We will have to re-craft our budget to take account of the fact that the bank levy is destined to be blocked," he said.

A spokesman for the Premier said the Government would seek to clarify in the next fortnight whether it would continue to pursue other measures contained in the blocked budget bill.

They include payroll tax cuts, stamp duty concessions and a new tax on foreign buyers of residential property.

There is just one scheduled sitting week, plus another optional sitting week, for Parliament to consider and vote on an amended bill.

Further decisions on how the Government will deal with the failure of the tax are expected in the mid-year budget review, due for release in December.

The Premier said the Legislative Council's decision to block the bill set "a new precedent" for the way budget bills would be dealt with.

Business welcomes backdown, Opposition hails 'great victory'

The bank tax was met by a chorus of opposition from business groups and the banking industry, which funded polling and advertising campaigns against the levy.

Opposition Leader Steven Marshall said the backdown was "great" for the state. ( ABC News: Nick Harmsen )

Property Council executive director Daniel Gannon said the backdown was a win for South Australia's investment attractiveness.

"Business owners, job creators, risk takers, mum and dad investors, and everyday South Australians have made it clear in recent months that they don't support punitive taxes that will dampen our state's economy," he said.

BankSA and the Australian Bankers' Association have also welcomed the South Australian Government's decision.

"Today is a real victory for the people of South Australia and in particular for those who operate businesses," the association's chief executive Anna Bligh said.

"The decision will provide them with a greater level of confidence and certainty which is vital for business."

The Government rejected an accusation by Opposition Leader Steven Marshall that it had used the announcement of the same-sex marriage survey result as cover for a major political backdown.

Treasurer Tom Koutsantonis said the Government still believed the bank tax was "the right thing to do", regretfully stating "we tried".

The Government's decision not to take the bank tax to the election marks a different approach to four years ago, when Mr Weatherill pursued the introduction of a levy on Adelaide CBD parking spaces in the face of parliamentary opposition.

Mr Marshall hailed the reversal in policy as a major win for the state.

"We have had a great victory on behalf of the people of South Australia," he said.

"Tom Koutsantonis today has lost. He needs to provide those [other tax] concessions, he needs to get on with it.

"There is no doubt, this has been a humiliating day for Jay Weatherill and Tom Koutsantonis but a great day for the people of South Australia."