Reserve Bank governor Philip Lowe says a cut to the company tax rate could be seen by some as "regrettable" but would not threaten Australia's return to surplus, as the Turnbull government moves to recast debate about the policy through a direct pitch to workers who deserve a pay rise.
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In a shift in language, Treasurer Scott Morrison on Friday made a case for workers to back the package by arguing an uncompetitive global tax rate "holds back the pay rise that Australians have been looking for".
Prime Minister Malcolm Turnbull also hosed down speculation the government might shelve the policy, committing to keep its $35.6 billion cost in the budget all the way to the next election even if, as expected, it is blocked by the Senate.
Mr Turnbull told reporters he would "absolutely" retain the tax cuts on the books in the May budget and beyond to ensure "there are great jobs [for our children]".
"Having a thriving private sector, a thriving business sector is vitally important for that," he said.
Earlier, Dr Lowe told a gathering of financiers he understood the pressure to cut company tax rates.
"There is international tax competition going on," he said, according to a transcript released Friday.
"Some people might think that is a good thing, other people think it is kind of regrettable, particularly about balancing the budget. But it is going on and we need to pay attention to that."
Dr Lowe added: "I'm assuming if there were further changes in the tax system it wouldn't put us off track on return to surplus."
He also said the tax rate was not the only thing that influenced investment decisions.
"There are a lot of investors here... I hope you are not here just because of Australia's tax rate, you are here because of a lot of other fantastic things in this country, we've got to think about a whole mix of things, not just the tax system."
Legislation to lower the tax rate from 30 per cent to 25 per cent for companies with a turnover of more than $50 million passed the House of Representatives on Thursday but is blocked in the Senate.
The government has been unable to win over the Nick Xenophon Team or One Nation to secure the votes it needs for the package, and Labor and the Greens remain firmly opposed.
The government has also foreshadowed personal tax cuts for middle income earners as a priority in 2018, but only on the condition it does not risk the planned return to budget surplus by 2020-21.
One government frontbencher told Fairfax Media that "if the choice is personal tax cuts or nothing, we'll do personal tax cuts".
Other Coalition MPs said workers earning between about $60,000 per year and $120,000 per year were squarely in the government's sights for income tax relief, and the estimated cost to the budget bottom line would be at least $10 billion.
Fairfax Media understands income tax cuts worth between $500 to $1000 per year are being floated in private discussions.
On Friday, Mr Morrison told an event in Sydney that businesses could not give workers pay rises if Parliament "insists on them continuing to pay the government more in higher taxes".
This only leaves Australian workers being left out," Mr Morrison said.
"Labor and the Parliament’s refusal to support lower taxes means Australian workers will be left behind on wage rises, as the jobs and the wage rises they should be getting get sent to the government in continued higher taxes, and also go offshore.
Mr Morrison also said the government was committed to the right economic outcome and would "not go to water the first time that someone makes a criticism of your policy".
Asked on Friday whether the government was preparing to abandon the company tax cut policy, Finance Minister Mathias Cormann said Mr Turnbull hadn't left "any wriggle room at all", and reaffirmed earlier commitments to take the cuts to the next election.
