Business has slammed the government's decision to scrap $4.7 billion worth of company tax cuts and redistribute the revenue to households.
In a shock move that is likely to inflame relations between Labor and the big end of town, Treasurer Wayne Swan tonight said the government would walk away from its previous promise to cut company taxes from 30 per cent to 29 per cent.
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Until now, Mr Swan had argued company tax cuts were the centrepiece of the government's efforts to assist businesses in the economy's slow lanes, such as the manufacturing and tourism industries.
But with the Opposition refusing to back the cut because it was tied to the mining tax, and the Greens also opposed, the government has chosen to divert money set-aside for the tax cut to increased payments to households.
The chief executive of the Australian Chamber of Commerce and Industry, Peter Anderson, said the decision was a "low blow" for the business community
"The business community is not concerned with pointing fingers or blame between politicians, but this looks like a decision that is dripping in politics," Mr Anderson.
"We have the mining tax now legislated, and unfortunately the business community has been snookered by the politics of the Parliament and the politics of the government."
Mr Swan denied it was a breach of faith with the business community, saying he had gone to "extraordinary lengths" to secure support for the measure.
"I never thought I would see the party of Menzies stand up in the Parliament and say 'oh no, we are not going to cut company taxes,"' Mr Swan said in Parliament House.
"We wanted to do more for business with a company tax cut but the Opposition's negative tactics have prevented that tax cut flowing."
The abandoned tax cut would have taken effect from this July for small business, and from July 2013 for big business.
Scrapping the cut is forecast to save the budget $4.7 billion over the next four years.
With relations already strained with key industries such as mining and banking, the move is likely to spark an angry response from business groups.
However, Mr Swan said business tax cuts were still on the drawing board through his business tax working group, which he set up after last year's tax forum. It will consider cutting company taxes before reporting to Mr Swan late this year, but any cut must be funded from within the business tax system.
Mr Swan said he was open to further discussion of company tax cuts, but his "bottom line" was that there needed to be consensus among business groups on how to pay for the measures.
"I remain ready, willing and able to work as closely as possible with the business community to bring about fundamental reform of company taxes," he said.