Key Senate crossbenchers will demand the government come up with a plan to stop Australia's "abhorrent" energy price rises before supporting the Coalition's signature $158 billion income tax cuts in Parliament.
The government will need to convince both Centre Alliance and One Nation to back the three-stage 10 year package without the support of Labor and has been hanging on personal briefings from Treasury and the Reserve Bank to sway the crossbench votes their way.
But meetings with RBA Governor Philip Lowe and Treasury executives in Adelaide last week failed to persuade the two Centre Alliance senators the government had made the case the tax cuts alone were in the economy's best interest amid growing economic headwinds.
They will now give the government's chief negotiator Mathias Cormann less than three weeks to pull together an energy policy proposal to ensure power price rises do not wipe out the benefit of tax cuts worth between $1000 and $4000 a year for middle income earners over the next five years.
Centre Alliance senator Rex Patrick said if disposable income was consumed by rising power prices, you "effectively nullify the advantage of the tax cut".
"We may end up with a slowing economy and no benefit to hard working taxpayers and a negative situation for the unemployed and pensioners," he said.
"It is a serious, serious issue and it does have a strong connection to tax cuts but it also needs to be resolved for other reasons."
The government is pushing to get Centre Alliance across the line with the first stage of the three-stage package due to start from July. If it fails to convince the crossbench it will be forced to either split the bill or delay a $1080 tax offset voters had been told to expect in their tax returns in less than a months time.
Senator Patrick said he did not expect the Coalition to come up with a comprehensive plan to fix gas shortages in Australia's energy market immediately, but would rely on an undertaking from Senator Cormann that the government would take specific actions in exchange for their support.
"The energy problem is unlikely to be solved in the next three weeks," he said. "But that is where it comes back to the relationship Centre Alliance has with Mathias Cormann".
In an interview on Monday, Senator Patrick called for an Australia-wide gas reservation policy to be considered. Under Western Australia's domestic gas reservation policy the state government requires new gas developments to supply the equivalent of 15 per cent of their exports to the domestic gas market.
The policy has spared WA the worst of the east-coast's gas price rises, which have seen electricity rise as a share of household spending by 17 per cent over the past year according to the Australian Bureau of Statistics.
Senator Patrick also said the domestic gas security mechanism "needs readjustment," suggesting the government required stronger powers to intervene in the market.
The mechanism allows the Minister for Resources to step in and limit the amount of gas exported by mining companies if there is a shortfall in domestic supply.
Australia is on track to become the largest exporter of gas in the world this year, but faces gas prices of between $9 gigajoule compared to $7 in Asia.
Record levels of exports out of the local market are expected to see prices rise to a peak of about $10.70 in February 2020, according to the Australian Competition and Consumer Commission - potentially leading to further domestic gas shortages and driving up power prices.
"This is a really absurd situation," said Senator Patrick. "You would think any country would look to what advantages it has in terms of competing in the international market and an obvious one for Australia would be our gas resources.
"Yet we are doing exactly the opposite of what a country should do."
One Nation leader Pauline Hanson said on Monday she was not in favour of the third stage of the 10-year tax plan "at this stage".
The final tranche would see a tax cut of up to $11,000 a year delivered to high income earners.
Senator Hanson said government money should be spent instead on building new coal-fired power stations and water projects.
- with David Crowe
- SMH/The Age