The federal government could secure three crucial votes from the Nick Xenophon Team for its company tax cut plan, but only if it adopts a politically contentious emissions intensity scheme for the electricity sector.
Support for the $48 billion company tax cut plan from Pauline Hanson's four One Nation senators was on hold late on Monday because of a dispute in the sugar industry in Queensland.
Senator Xenophon has, to date, indicated his party would only back a cut in the company tax to 27.5 per cent for companies with a turnover of up to $10 million.
The federal government wants to cut company taxes from 30 per cent to 25 per cent over 10 years for all businesses. Labor will only back a cut for companies with a turnover of $2 million and the Greens do not support the policy, which effectively puts the fate of the plan in the hands of the Senate crossbench, where One Nation and the Xenophon Team both have the numbers to block it.
A vote on the tax package is expected in the Senate by the end of the week, and as negotiations with the Xenophon Team and One Nation continue, Senator Xenophon suggested he could go further if the government reversed course and backed an emissions intensity scheme.
Such a move would be politically risky for the Turnbull government.
An emissions intensity scheme is a form of carbon pricing that puts a limit on how much carbon an electricity plant can emit for every unit of electricity it generates.
It is widely backed by business, farming and environmental groups and was briefly considered by the government in December, but then rapidly dropped after a backbench revolt.
However, Senator Xenophon said on Monday that his party: "will support company tax cuts for businesses up to $10 million, but nothing beyond that, until we can sort out the energy crisis in this country".
He criticised the government's announcement on Monday of an inquiry by the competition watchdog into retail electricity prices as a "lame excuse" for action and demanded "immediate action".
"The fact that Minister [Josh] Frydenberg has walked away from the emissions intensity approach, one endorsed by Malcolm Turnbull when Malcolm Turnbull commissioned Frontier Economics eight years go in relation to an alternative approach to carbon pricing is just extraordinary."
Asked what specifically he wanted in return for potentially backing a tax cut for companies with a turnover of more than $10 million, Senator Xenophon said: "It would have to be a guarantee [of an emissions intensity scheme] that is locked in in terms of bipartisan support. You would actually unleash billions of dollars of investment in this country."
Senator Xenophon also said that he would require a national approach that would see some gas reserved for domestic use as part of a potential tax deal.
Treasurer Scott Morrison defended the company tax plan on Monday and indicated the government would press ahead with the entire package, while suggesting the dispute between Queensland Sugar Limited, the co-operative that sells sugar overseas and Wilmar, the company that mills it, was close to resolution.
Senator Hanson warned on Monday her party, which has indicated it supports a tax cut for companies with a turnover of up to to $50 million, would not vote on legislation until the sugar dispute was resolved.
Late on Monday, her office confirmed they planned to continue to abstain from voting on government legislation but added they had held "significant talks with the government regarding their company tax proposal".
Mr Morrison said One Nation was a "bit behind the play" and that a draft deal between Queensland cane growers and sugar refiner Wilmar would be "on the table today".
