A global tax on financial transactions is not appropriate for Australia because local banks did not fail during the global financial crisis (GFC), Australia’s banking sector said on Thursday.

The European Commission wants to impose a tax on financial transactions to prop up the bailout fund for debt-laden economies. But Steven Münchenberg, Chief Executive of the Australian Bankers’ Association (ABA), said “This is just a tax on the rest of the world to pay for the European Union's debt problems.”

“Nations that are in favour of this type of tax are those where banks had real problems. These countries want to tax their banks because they had to use taxpayer money to bail out the banks during the GFC, unlike Australia, Canada and other countries,” he said.

According to Mr Münchenberg, taxpayer money was not used to bail out Australian banks.

“In fact, Australian taxpayers have already earned $3 billion from banks for the support given by the Federal Government for the wholesale funding guarantee and will pay more than $5 billion over its full life.”

Banking Sector Labels Transaction Levy As 'Magic Pudding Tax'

The banking sector is pleased Treasurer Wayne Swan previously ruled out the transactions tax, which Mr Münchenberg labeled as a 'magic pudding tax'.

“This is a 'magic pudding tax' - it somehow raises billions of dollars without anyone supposedly paying much. The reality is that someone does have to pay, either through higher banking costs or through lower returns to superannuation funds and ‘mum and dad’ shareholders,” he said.

According to ABA, there seems to be an underlying assumption in this tax proposal that financial markets are all involved in wild speculation only, rather than the hedging of risk.

“The tax proposal would undermine legitimate attempts to hedge risk and has the potential to disrupt this important insurance, which many companies put in place. This is even more important in these uncertain economic times,” it said.