Turnbull government caves to pressure on childcare and savings package

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13 Mar 2019

Financial Review Business Summit Nick Xenophon. Photo: Louie Douvis
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The Turnbull government has caved to pressure from the Senate crossbench, splitting its childcare reforms from the contentious “omnibus” savings package in a bid to salvage the childcare bill and limited cuts to welfare.

It says about 800,000 families will benefit from the changes to childcare.

The government believes it has secured support for $1.6 billion in savings measures to offset the cost of the childcare reforms, chiefly from resurrecting an old proposal to pause the indexation of the Family Tax Benefit for two years.

The measure will raise $1.38 billion, government sources said. Other savings will be made through a freeze on the means test threshold for other payments, and extending waiting periods for parents and young people seeking welfare.

Other measures from the omnibus savings bill, including contentious cuts to the family tax benefit, will be split off and are unlikely to pass the Senate.

“There will be more work to be done after today, but this is as far as we believe the Senate is going to be prepared to go on this occasion, and that’s what we’re putting forward,” Finance Minister Mathias Cormann said Wednesday morning.

Attorney-General George Brandis, leader of the government in the Senate, also moved to extend sitting hours on Thursday and into Friday in order to pass the bill this week.

The government began the week insisting it wanted to treat the various measures as a package deal in order to fully fund the $1.6 billion childcare reforms that will boost subsidies to low-income families and curb rising childcare costs.

But the plan had been thwarted by crossbenchers including the Nick Xenophon Team, One Nation, Derryn Hinch and Jacqui Lambie, who maintain objections to various parts of the savings package.

The government will use the revised package, stripped of cuts to the Family Tax Benefit, to heap pressure on the Labor opposition to support the bill, which is before the Senate.

Education Minister Simon Birmingham will present modelling showing about 800,000 families will be better off under the childcare reforms, with a family on $80,000 a year benefiting to the tune of about $3400.

Plans to scrap end-of-year family tax benefit supplements now appear doomed after One Nation leader Pauline Hanson told the government on Tuesday night her party would not support the measure. She gave the Turnbull government “less than 24 hours to change their tune”.

The Xenophon trio and Senator Hinch are also reluctant to support that element of the package, while Senator Hinch has demanded childcare subsidies for very high income earners are scrapped or reduced.

Labor has previously indicated it was open to supporting the childcare package if it were separated from the welfare cuts.

“We will vote to improve the deal for child care, absolutely, so long as he drops his cut to family payments,” Opposition Leader Bill Shorten said on Sunday.

On Wednesday he promised not be “obstinate or bloody-minded” but said he would reserve Labor’s position until the government presented the deal.

The Turnbull government was often “too stupid to know when they’re beat”, Mr Shorten said.

In total, the original omnibus savings bill would have improved the budget bottom line by about $4 billion, once the extra expenditure on childcare was taken into account.

Mr Birmingham on Wednesday said private discussions with the crossbench continued, and he was optimistic the government would try to salvage enough savings to pay for the $1.6 billion childcare package.

“They’re constructive discussions and we’re making good progress,” he said. “We obviously want to make sure these reforms – a $1.6 billion additional investment into childcare and early education – are paid for.

“We are working through to make sure we get an outcome.”

The Turnbull government does not have a majority in the Senate and is thus reliant on the support of the 12 crossbenchers when bills are opposed by Labor and the Greens.

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