DEAL DONE: Australian small businesses with a turnover under $10 million just got an immediate 2.5% tax cut

South Australian Federal Senator Nick Xenophon. Photo: Scott Barbour/ Getty Images.

The Turnbull government has managed to salvage part of its company tax cut at the 11th hour after striking a deal with South Australian senator Nick Xenophon and his two fellow NXT senators so the cuts kick in at $50 million in turnover.

Finance minister Mathias Cormann returned to the senate just after 4.40pm on Friday to praise members of the crossbench for their support before announcing the deal.

The government made the senate sit for an additional day after failing to secure enough support for the Enterprise Tax Bill it proposed in the 2016 budget. The senate was due to rise last night ahead of Scott Morrison’s 2017 Budget.

“We have been able to reach an agreement,” Cormann said.

He said the crossbench support will “help us implement the first three years of our tax plan”.

The company tax cut, which begins to roll out immediately, will see companies with an annual turnover of less $10 million pay 2.5% less tax at the new rate of 27.5% this financial year.

“Another 10,000 businesses and one million workers will benefit,” Cormann said.

But the government’s plan is for all companies to receive a 5% cut, with the rate falling to 25% by the 2026-27 financial year. Today’s deal buys them three years to try and finalise further reductions, including for big business.

From July 1, companies with a turnover of up to $25 million will get the 2.5% reduction to 27.5%, with the drop then applying to businesses under $50 million in FY18-19.

Going into negotiations with the three NXT senators, the government only had enough support for tax cuts for businesses with a turnover under $10 million – the position originally backed by the trio.

During debate in the Senate after the announcement of Xenophon’s support, the finance minister said the government’s original plan remained its long-term goal.

The existing deal at the $50 million threshold with cost half of the original $48 billion plan over the next decade.

But Xenophon, who made his state’s recent power problems a cornerstone of his bargaining, extracted a range of concessions from the government on energy policy as the price of NXT’s crossbench support.

Welfare recipients will receive one off payments to offset rising power costs with the government handing singles $75 and couples $125. The payments are a $250 million hit to the federal budget.

The government has also “agreed to explore and pursue a power affordability and reliability policy,” Cormann said.

The Australian Energy Market Commission and the Climate Change Authority will be asked to jointly produce a report into ways to “enhance power system security and to reduce energy prices”.

The report is due by June 1 and will be released to the public a fortnight later.

The government also agreed to review gas retention policies and the Commonwealth will offer a concessional loan at 3.3%, worth up to $110 million, for a solar thermal plant at Port Augusta in South Australia. Plans for a gas pipeline linking the Northern Territory and South Australia are also being considered.

Xenophon also wants the Productivity Commission to take over the government’s review of electricity retailers by the ACCC.

The legislation has not yet been passed by the senate. Debate continues as the final flights out of Canberra loom within the next hour or two to some states.

“You’ve been sold a pup,” Labor senator Sam Dastyari told the NXT senators during subsequent debate.

Earlier in the afternoon, treasurer Scott Morrison held a media conference to say he’d received advice from the Australian Tax Office (ATO) that the legislation did not have to be approved by the House of Representatives in order to come into effect. The government saying it would back any changes approved by the senate was enough, he said.

The lower house rose for the autumn break yesterday and won’t sit again before May 9 ahead of Morrison’s second budget.

“Any arrangements completed by the Senate would be able to be immediately acted upon by the ATO following a statement by me as treasurer that the government would be supporting those amendments,” he said.

Today’s deal still leaves Australian company tax rates higher than the UK, which flagged cutting its rate to 17% by 2020. British prime minister Theresa May has hinted she may even beat US president Donald Trump’s plan to cut company tax to 15%, and go as low as 10%.

Nonethless, Business Council of Australia CEO Jennifer Westacott hailed the deal as an “historic step towards rebooting Australia’s international competitiveness and prosperity”.

But she warned that larger companies needed the cuts too in order to remain globally competitive.

“Large businesses accounted for more than two-thirds of the increase in private-sector employment over the five years to June 2015, are responsible for most of Australia’s investment and are the most vulnerable to global competition,” Westacott said.

“It is now imperative that parliament continue negotiating the full passage of the Enterprise Tax Plan, which should remain in the budget as the only policy on the table to revive the economy with better jobs and higher incomes.”

The amended Enterprise Tax Plan bill was finally approved by the Senate by 30 votes to 27, just before 6.30pm on Friday.

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