The federal government and Australia's five largest banks are on a collision course, with Treasurer Scott Morrison demanding they "pony up" for budget repair and the banks threatening to hit households with higher costs.

In an extraordinarily blunt message from a federal treasurer, delivered during Mr Morrison's post-budget National Press Club address, the big four banks and Macquarie were challenged not to pass on the cost of the tax, which will raise $6.2 billion.

Instead, Mr Morrison said, the banks should be mindful of their $30 billion annual profits and absorb the cost of the new levy - just as small businesses and families do with their rising costs.

A surprised Labor Party has already indicated it will back the bank levy, which means it is certain to pass the Parliament.

But the banks have already started to fight back, warning that borrowers and shareholders could have to pay the cost of the tax.

Mr Morrison also flagged personal income tax cuts to correct bracket creep, which pushes taxpayers on to the next-highest tax rate as wages grow with inflation, in the next four years.

And he spoke at length about his brother-in-law, Garry Warren, who has multiple sclerosis, and his wife Michelle Warren, during the speech, as he outlined why the government had decided to raise the Medicare levy to fund the National Disability Insurance Scheme. 

"With great respect to the bankers in the room, families absorb costs, small businesses absorb costs," he said.

"The banks want to send a message to their customers about how much they value them? Don't do what they may be contemplating doing [raising rates or reducing returns]. Don't do it. They already don't like you very much. Prove them wrong. Don't confirm their worst impressions. Tell them another story. Tell them you will pony up and help fix the budget.

"I demonstrated my position on bracket creep last year, when we ensured that 500,000 Australians who would be on a full-time ordinary wage wouldn't go into the second-highest tax bracket."

That meant in practice, Mr Morrison said, that the government would take decisions when that tax cap [of tax to GDP remaining at or below 23.9 per cent] is at threat of being breached, to ensure that the taxes remain below that level. "We're committed to that approach," he said.

The decision to take on the five biggest banks and hit them with a new tax was a major surprise on budget night and is one of a number of measures that underscores a significant shift by the Turnbull government away from the austere policies of the Abbott-Hockey 2014 budget and towards a more populist stance, including new spending measures on infrastructure, health and schools.

​Politically, the Turnbull government will be hoping the shift to the political centre will blunt Labor's attacks over fairness and equity, and its push for a banking royal commission, while arresting its slide in the polls.

But Australian Bankers Association chief executive Anna Bligh warned the measure could destabilise the financial system.

She said the banks would meet with Treasury officials on Thursday to receive more details and prepare a response and added: "I don't believe the Treasurer has thought through the implications of this tax.

"Right now, the major banks of Australia are very angry; they feel they have had a tax imposed on them uniquely that does not apply to any other part of the business community," she said.

"Banks are trying to work out what this means for them . . . make no mistake, when you take $1.5 billion a year out of the Australian economy, where it is currently working to build jobs and growth . . . you will feel a ripple right across the Australian economy."

Westpac chief executive Brian Hartzer said the levy was a "stealth tax" that would reduce the international competitiveness of the sector, while flagging a possible increase in interest rates for borrowers, job cuts, or a reduction in returns to shareholders.

Commonwealth Bank chief executive Ian Narev said there had been a "lack of detail and the absence of any consultation" about the tax.

"However, as every business owner or employee knows, every extra cost needs to be borne by customers or shareholders, or a combination of both. We look forward to Treasury outlining how this tax will apply in practice."

When news of the levy leaked on Tuesday ahead of the budget, investors wiped $14 billion from the value of stocks.

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