The move, described by Opposition Leader Steven Marshall as a “humiliation” for Premier Jay Weatherill and Treasurer Tom Koutsantonis, has been welcomed by banks and the state’s business lobby. But it will – according to Labor – mean “re-drafting” its June budget – and possibly jettisoning a raft of payroll tax and stamp duty concessions the Treasurer has previously insisted were inextricably linked to the $370 million tax.

“It’s pretty clear the bank tax is dead,” Weatherill told reporters today, as the Upper House was poised to vote Labor’s budget measures bill down a second time unless the revenue measure was removed from it.

It was blocked by the Liberals, along with Advance SA MLC John Darley and Australian Conservatives crossbenchers Robert Brokenshire and Dennis Hood, with SA Best leader Nick Xenophon also pledging to oppose it if he holds the balance of power after March.

“Steven Marshall and Nick Xenophon have lined up with the big banks against ordinary South Australians and small businesses,” said Weatherill.

Weatherill said his Government would “recommit ourselves to the number one priority in relation to our budget strategy, the creation of jobs” but refused to outline how it would proceed.

“We’ll be re-crafting the budget [and] it may or may not require legislative measures… that’s something we’re going to have to reflect upon in the next little while,” he said.

“We simply will not set aside our objectives – we’re going to continue to put measures in place to advance jobs growth.”

The Government came under fire for the timing of today’s announcement – less than two hours after the results of Australia’s marriage equality survey were made public.

“I’m pretty cynical about the timing… there’s no doubt they’re hiding under the cover of a big news day,” Marshall said.

But Weatherill insisted Labor had been “involved in discussions as late as yesterday” and it was only “obvious now the bank levy will fail”.

Koutsantonis had long threatened to take the issue to the March state election, but the Premier said there was “no basis for taking the bank levy to an election”, given it was unlikely Labor would have an Upper House majority in any event.

“It doesn’t seem sensible for us to construct a budget strategy for the next four years based on a levy that has uncertain prospects of success in the new parliament,” he said.

Thus the tax joins a long line of measures thrown up by Labor this term and subsequently abandoned, including the adoption of eastern standard time and the pursuit of a high-level nuclear waste dump.

But Weatherill defended his legacy, saying: “The alternative proposition is you don’t try things, you don’t advocate for measures and you never change anything.”

The move was today welcomed by the Australian Bankers’ Association, which had funded a furious campaign against the budget measure.

The Association’s CEO Anna Bligh, the former Queensland Premier whose intervention had provoked a strident war of words with Koutsantonis, told InDaily: “This decision is great news for South Australians, great news for business and a great relief for Australian banks.”

But she warned the precedent had been set for other states, with a bank tax still on an agenda of possible budget items in WA and on a new discussions paper published in the Northern Territory today.

“The bank tax may be dead in SA but it may now rear its head in other jurisdictions,” she said.

“But I’d hope that the commonsense that’s prevailed in the SA Upper House and the willingness of the Government to respect the will of the parliament and up the strong views of the business community will be heeded.

“It’s been very clear from the campaigning that this tax didn’t enjoy majority support in the community and was directly opposed by the SA business community – both small and large.

“It’s never been a popular tax and in those circumstances it was very hard to get it through the upper house… I’m sure all those things have played on the Government’s mind.”

Business SA boss Nigel McBride, another fierce critic of the tax, called the decision to dump it a “victory for commensense”.

“In a $19 billion-plus budget [this was] a rounding error that’s become a huge distraction,” he said of the measure that was to raise $370 million over the next four years.

“It was a damaging sideshow that we’re pleased is over, and we congratulate the Government for hearing the views from business and others.”

This is a humiliating day for Jay Weatherill and Tom Koutsantonis – but what a wonderful day for everybody else in SA

But Marshall was less diplomatic, declaring it “a humiliating day for Jay Weatherill and Tom Koutsantonis”.

“But what a wonderful day for everybody else in SA,” he added, savouring a significant political victory just four months from polling day.

“This is a great day of celebration – we’ve been able to knock off the bank tax, which was going to hit everybody in this state.”

He derided Labor’s reluctance to put up the budget measures bill as it is, without the bank tax, saying Koutsantonis “needs to suck it up provide those concessions”.

“Labor has got options, but instead they’re sitting there threatening the people of SA,” he said.

But he refused to rule out blocking any future revenue measures contained in the budget, saying: “That’s completely hypothetical”.

“We have to see what they’re going to put forward,” he said.

“The government has been dragging the chain, putting the people of SA through this unnecessary angst because they haven’t been able to get their act together and count the numbers on the floor.”

But Koutsantonis maintains the budget is an all-in proposition, insisting “we’re going to have to consider all these measures as a whole”.

“We wanted to tax five very large banks that don’t pay their fair share of tax,” he said.

Of his political retreat, he lamented: “There’s not much we can do about it.”

“The parliament has taken the side of the big banks.

“It has no prospects of passing [so] this measure is dead.”

Weatherill denied he had been spooked by a community backlash against the tax, saying “I don’t think there were strong views either way”.

“It was pretty evenly balanced, from all the survey materials I’ve seen about it… that wasn’t the motivating factor.”

Koutsantonis said the decision to jettison the levy would have no bearing on a raft of disability services totalling more than $40 million he had pledged to Dignity Party MLC Kelly Vincent, which had been previously linked to her support for the budget measures bill.

Xenophon told InDaily the levy would have been a “counter-productive tax” that would have decreased investment in the state and “hurt the economy”.

“The right call’s been made,” he said.