Australia's big four banks plus Macquarie will wear the lion's share of budget repair with a new tax on much of their funding.

Key points: Levy is forecast to raise approximately $1.5 billion per year over the next four years

Levy is forecast to raise approximately $1.5 billion per year over the next four years An increase in mortgage and/or other lending interest rates is likely

An increase in mortgage and/or other lending interest rates is likely If banks breach rules they will face fines, starting at $50mn for small banks, $200mn for big

Treasurer Scott Morrison has announced a 0.06 per cent annual levy that will apply to certain key funding sources, and only affect banks with liabilities (debts) above $100 billion, namely the Commonwealth Bank, Westpac, National Australia Bank, ANZ and Macquarie.

The new tax will be levied on various types of borrowing that banks use to fund their lending, including corporate bonds and large deposits, but it will not affect shareholders' capital and smaller deposits (below $250,000) covered by the Government's guarantee.

If it passes Parliament, the levy is forecast to raise approximately $1.5 billion per year over the next four years, following its planned introduction on July 1.

Given the five institutions affected have combined annual profits above $30 billion, the tax is likely to be an extra impost of less than 5 per cent of their earnings.

If the Government's corporate tax cut plan was to be passed in full, the new major bank levy would effectively cancel out most, but not all, of the benefit for the big banks, which previously stood to be the biggest beneficiaries of the planned reduction in company tax from 30 to 25 per cent.

Bank levy may trigger interest rates rise

The levy may prompt a modest (less than 0.06 percentage point) increase in interest rates for small savers whose deposits are exempt from the tax.

However, given Australia's relatively concentrated banking sector, dominated by the big four, it is also likely to see an increase in mortgage and/or other lending interest rates to maintain profitability.

In an effort to combat this, the Government said the Australian Competition and Consumer Commission (ACCC) would undertake a residential mortgage pricing inquiry for the next year.

The ACCC will be able to force the banks to explain any changes to home loan pricing, including fees or interest rates, during that period, although it is unclear anything could be done to prevent those price rises.

Australian Bankers' Association chief executive Anna Bligh said the new tax would be bad economic growth.

"This new tax is a direct attack on jobs and growth, not just a tax on the five largest banks," Ms Bligh said in a statement.

"It is a tax that will hit Australians by hurting investment and could have unintended consequences.

"Contrary to the Government's claim that the tax will only be levied on banking liabilities, the reality is that it will affect the entire banking system."

Bigger penalties for bankers behaving badly

If bank bosses will be upset with an extra financial impost, they will probably be even more alarmed by new regulation and increased penalties for banks and bank executives found guilty of misconduct.

A new Banking Executive Accountability Regime will compel all senior bank bosses to be registered with the Australian Prudential Regulation Authority.

If found to be in breach of their obligations under the regime, executives can be delisted from the register, barred from holding executive roles and even stripped of their pay bonuses, which often make up a majority of their remuneration.

If banks breach misconduct rules, they will face bigger fines, starting at $50 million for small banks and $200 million for large institutions.

In a potential win for long-suffering customers in dispute with their financial institution, the Government is replacing three bodies widely criticised by consumer groups for their ineffectiveness with a one-stop shop for financial disputes.

The Australian Financial Complaints Authority will continue to be funded by the industry and offer free, binding dispute resolution to aggrieved customers.

In response to recommendations from Professor Ian Ramsay's review, commissioned by the Government, it will replace the current Financial Ombudsman Service, Credit and Investments Ombudsman and Superannuation Complaints Tribunal.