The federal government is expected to kill off a proposal to allow first home buyers to use their superannuation to buy a house, with cabinet ministers lining up behind Prime Minister Malcolm Turnbull to pan the idea.
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Late on Thursday, Fairfax Media was told the budget razor gang, also known as the expenditure review committee, had not taken a final decision on two of the most contentious proposals that could be included in the May 9 budget's housing affordability package.
That means, in effect, proposals to wind back capital gains tax concessions, and allow first home buyers to raid their super still survive - albeit, on life support.
The powerful ERC held an all-day-meeting in Sydney on Thursday to examine a range of housing affordability policies after a week of unruly debate about the super for housing proposal.
Other measures the ERC examined are said to have included "low hanging fruit" such as a tightening of the rules for foreign buyers and freeing up unused Commonwealth land for new housing developments.
Cabinet minister Matt Canavan and MPs including Ian Goodenough and George Christensen have publicly backed the super for housing proposal, while Treasurer Scott Morrison and his assistant minister, Michael Sukkar, have backed the proposal in internal discussions.
But Defence Industry Minister Christopher Pyne and Immigration Minister Peter Dutton spoke out against the proposal on Thursday, lining up with Mr Turnbull, Finance Minister Mathias Cormann and Revenue Minister Kelly O'Dwyer.
Labor seized on the obvious divisions within government over the policy proposal, with shadow treasurer Chris Bowen arguing the Turnbull government was gripped by "dysfunction and chaos at the heart of the Turnbull government's economic policy".
"One of two things is going to happen today. Either bad policy is going to be chosen or the Treasurer will be rolled, again, as he has been in the past on negative gearing," he said.
Mr Bowen's comments came after Mr Pyne lashed Coalition colleagues for publicly debating whether the government should allow first home buyers to raid their superannuation to help pay for a deposit.
He said those MPs seeking to "fiddle" with superannuation in the May budget risked destroying a retirement savings system that was the "envy of the world".
"It's a great pity that colleagues are running these debates publicly," he said.
"Whether they attach their name to them, which I think is much more respectable, or do so anonymously [through the media], the budget process should be managed behind closed doors and on budget night it should be revealed to the people."
Mr Pyne said the Prime Minister's comments had reaffirmed Coalition policy, "which is that there is no policy to allow superannuation to be used for housing".
Mr Dutton, one of the most senior conservatives in the government, said the "PM has got it right. He's referred back to his previous words on this to say that it's not good policy and I agree with him".
"People have rightly explored options about what you can do around housing affordability. [We have] ruled out [changes to] negative gearing and now the PM has dealt with this issue as well. So there are other ways that you can provide help but you don't want to fuel the prices. You don't want to create a situation that is worse than what we have got at the moment," he said.
Senator Canavan, who has advocated for the super for housing proposal in his maiden speech to Parliament and as recently as this week, on Thursday back pedalled in an interview on Sky News.
"You can see why people would be for it, and why people would be against it," he said.
The proposal was not a "magic bullet", he said, and that "there are a number of things you can do" to help people struggling to buy their first home.
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