Australia’s banks and credit unions want the Federal Government to scrap plans for a tax on bank deposits.

The bank deposits insurance levy is likely to be unveiled in the May budget as part of a move to raise $500 million a year.

Sources have told the Australian Financial Review the Coalition government would proceed with a bank tax, a tax first proposed by Labor ahead of the 2013 election.

Labor had proposed a 0.05 per cent levy on every deposit of up to $250,000.

The Australian Banker’s Association (ABA), which represents 23 banks operating locally, said the tax would hurt savers and self-funded retirees already struggling with low interest rates.

“Millions of Australians, including many self-funded retirees, rely on their savings to fund their current and future prosperity and they should not be punished by a new tax,” ABA chief executive Steven Munchenberg said.

“The levy (plan) should be scrapped.”

The ABA said banks would have to pass on the costs to customers, adding that it had opposed the deposit levy when the Rudd government proposed the idea during the election campaign.

The ABA released a report on Friday arguing that the banks paid $13 billion in taxes to Australian governments in 2014, including $11 billion in company tax.

The Customer Owned Banking Association, which represents credit unions and building societies, also wants the government to dump the idea.

“This is a tax on the savings of ordinary Australians,” the group’s chief executive Mark Degotardi said.

He noted that a month before the 2013 election, Treasurer Joe Hockey had described such a tax as “not good public policy”.

In government, Labor had planned to bring the tax into operation on January 1, 2016.

All bank shares were weaker during early trade on the Australian Securities Exchange, with financial stocks 0.8 per cent weaker on average by 1037 AEDT on Monday.