Prime Minister Malcolm Turnbull has dismissed a demand from former federal treasury secretary Ken Henry that the government’s new bank levy be subject to a full public inquiry.

Dr Henry, who is now the chairman of NAB, launched a scathing criticism of the tax announced in last Tuesday’s federal budget, saying risks damaging the economy and being paid for by customers.

The demand follows warnings by the nation’s five largest banks — ANZ, NAB, Westpac, Commonwealth and Macquarie — that the levy, which aims to raise about $6.2 billion over the next four years, had been hastily designed and should be lifted once the budget returns to surplus.

“The Government should have acted more responsibly and explained on budget night that this tax will be borne by bank customers and/or shareholders,” Dr Henry told The Australian newspaper.

“There should be an open public inquiry because the tax lacks policy coherence both in respect of tax policy and in respect of financial system regulation.”

PM says ‘banks can afford it’

Mr Turnbull insists customers should not bear the cost of the billion-dollar levy, saying Dr Henry was merely standing up for his own bank.

“He knows as well as I do that the banks can well afford to pay this,” the Prime Minister told ABC radio on Tuesday.

Dr Henry claims the tax will cost NAB more than $300 million a year.

Minister for Trade and Investment Steve Ciobo acknowledged Dr Henry was well-intentioned.

“However he is also not infallible,” he told ABC radio from Hong Kong.

Bank levy to be worn by customers, sector says

The banks had until midday Monday to make submissions to the Commonwealth on the new levy.

In NAB’s official submission to Treasury, the bank reiterated customers would bear the brunt of any increased costs to their businesses.

NAB Group chief financial officer Gary Lennon stated:

“The levy cannot be absorbed; it will be borne by these people.

“It is not possible to increase taxes by this magnitude without it impacting people.”

That is a position echoed by Commonwealth Bank management.

“The realities of running a business, whether small or large, are that higher costs are either passed on to customers through reduced service levels or higher pricing, or to shareholders through lower returns,” chief executive Ian Narev stated in his submission.

“There is no middle option to absorb costs.”

Treasurer Scott Morrison had pleaded with the banks not to pass the levy costs on to customers, telling executives the public “already don’t like you very much”.

After meeting with Treasury officials on Thursday, concerns were raised about the short deadline imposed on the banks to make submissions to the Commonwealth on the proposed levy.

“Westpac is concerned at the rush with which the levy is proposed to be passed into legislation and the lack of a thorough consultation process,” the bank’s chief financial officer Peter King wrote.

NAB, Commonwealth and Westpac have all called for the levy to be lifted when the budget returns to surplus.

– With ABC, AAP