Having obtained the advice of the State Crown Solicitor, South Australia is confident that the measure is constitutional but the banks are currently exploring the prospect of a challenge to the High Court and King Wood Mallesons has been briefed to look at the issues.
Under the constitution the Commonwealth has exclusive power over banking and there is the prospect that the tax could be in breach of section 92 which guarantees the freedom of interstate trade and commerce.
Inside Canberra has spoken to a former senior South Australian banker who has said that the levy will do enormous harm to the South Australian business environment which is already under pressure because of high state taxes, high power prices and business uncertainty.Z
He also made the point that it will deter young professionals from looking for work in the private sector and will encourage them to leave the state and look for work in jurisdictions with better prospects for business.
The banks are muttering about retaliation.
At least one, the Westpac subsidiary Bank SA, has said that it will cancel an intended investment in the state.
Others have raised the prospect of reducing credit or increasing state interest rates.
At the moment the South Australian government is acting as if the public sector is the only thing that counts in the South Australian economy.
The SA Labor government is behind in the polls and faces an election in March next year.
A recent redistribution by the Boundaries Commission has converted a number of Labor seats into potential Liberal electorates.
Labor hardheads admit that it is unlikely the Party will win the next election even though the Liberal Party is pretty lacklustre.
Winning the next election could however be Labor’s worst nightmare.
If the banks decide to put up the interest rates on mortgages and business loans, an incoming Weatherill government will have to deal with the consequences of higher mortgages and business loans for South Australians who are already doing it tough.
Subscribe to Inside Canberra