Australia is a country rich in potential. Our natural resources, human resources and proximity to centres of global growth provide the foundations of a strong economy, which can benefit all Australians. The only limitations are those we place on ourselves, and sadly this is what both the federal and South Australian governments are doing with unprincipled bank levies: reducing Australia's potential by increasing our sovereign risk.

The combination of our relatively small population, and the capital intensiveness of many of our industries, means that demand for investment will for the foreseeable future exceed the local supply of savings. In other words, if we are to reach our undoubted potential, we will rely on foreign investors to provide capital. 

This reality was noted in the comprehensive review of the financial system undertaken in 2014 by a committee led by David Murray. In his report Murray noted: "Ongoing access to foreign funding has enabled Australia to sustain higher growth than it otherwise could. The financial system has an important role in facilitating funding from, and investing in, offshore capital markets."

One of the consequences the committee identified is the need for Australian banks to be seen as "unquestionably strong" in the eyes of global funders. While there has been healthy debate about what "unquestionably strong" means, the underlying premise was well reasoned, and accepted by politicians, regulators and banks. Banks now hold significantly more capital, and significantly higher liquidity.

The providers of the capital that fuels our economy are international pension funds, just like the Australian super funds looking after our retirement savings. These funds place high importance on strong banks. But they also place high importance on strong, predictable government policy. Providers of capital hate surprises. Surprises undermine their confidence to invest. They wonder where surprises will end. And in a world where they have abundant choices for investment, surprises ultimately lead them to take their capital – the capital we need to build businesses and create jobs – elsewhere.

Unpredictability of government policy has a clear label: sovereign risk. Ask global investors about their view of Australia, and most will point to significantly elevated levels of sovereign risk.

It is in this context that we should view the South Australian government's unprincipled and reckless tax grab as it walked through the gate the federal government left open. Despite the fact that almost every Australian has an economic stake in the banks, and that banks directly and indirectly create jobs and wage growth, the Federal and South Australian Governments revel in saying how easy it will be to gain support even for populist policies that have no basis in sound economics.

They may be right. But they miss the big point. Under their watch, sovereign risk in Australia is rising exponentially. That won't show up in short term opinion polls. It will show up over the longer term in reduced investment and higher costs of capital. And the community may take a different view when, in time, the consequences of these ill-considered policies become obvious, and can't be explained away by slogans.

Given our dependence on global capital, any federal or state politician who creates sovereign risk does so at the nation's peril. It is true that we need business leaders who have more political savvy. Equally true is the need for economic policymakers who have personal experience working in global markets. Or in the absence of such experience, politicians should consult; they should listen to markets, and heed the sound advice from experts within their treasury departments.

It will be interesting to see whether the glee with which the South Australian government announced its deliberate elevation of sovereign risk last week remains after the next meeting it has with investors to encourage investment in its state. No doubt the political spin will say that there is no problem; anyone with experience in markets, and knows the history of sovereign risk, knows that the reality will be very different.