THE relationship between the government and the business community is souring with negotiations for a company tax cut on the brink of collapse and the mining sector convinced the government is about to hack into its generous diesel excise rebate to help balance the budget.

The miners, who threatened an advertising campaign if the government touched the diesel rebate in the budget in May, are again threatening to fight back if it is touched to help pay for promises like the Gonski school funding reforms or the blowout in asylum seeker costs.

”Diesel is the line in the sand,” a senior industry source said yesterday. ”But we’ve been told from within government to watch out for diesel.”

Another business figure said that it was clear from talks with government over the past week that the diesel rebate was being looked at.

”Diesel is easy money and quick money,” the source said.

As part of the carbon price legislation, the $2 billion annual diesel excise rebate was cut by 6¢. That excise is 60¢ a litre and the rebate was cut from 38¢ to 32¢.

The miners accepted that but fought moves to cut any more. They are warning now that with falling commodity prices, the carbon tax and the mining tax, any further cut to the rebate will stall more projects. Business is also losing hope about a promised company tax cut.

In the budget, the government scrapped a promise to cut company tax from 30 per cent to 29 per cent, which would have been funded by the mining tax, and gave the money to low and middle-income earners as cost of living assistance.

The government said big business had itself to blame because it did not lobby the Coalition to pass the legislation and it would have been blocked by Parliament.

The Prime Minister, Julia Gillard, then promised the sector it could have a company tax cut but only if it was funded by reforms to other business taxes.

This week, major industry and business groups met with Treasury officials and the government’s Business Tax Working Group, which is seeking a way to fund the company tax cut.

Business now believes there is no way to deliver the company tax cut without having a detrimental effect on a certain sector of business or industry, meaning there will be no overall net benefit.

The groups have been told that the cut must be funded by changing or axing accelerated depreciation, research and development concessions or thin capitalisation arrangements. They have argued that if there is no net benefit, a company tax cut is pointless.

”If there’s not net benefit, we’re not interested,” a senior executive told the Herald. ”There is a very strong view that this is a waste of everyone’s time.”

But the executives are worried the government will press ahead with the savings measures anyway and use the revenue to balance its budget and pay for its reforms, regardless of whether there is a company tax cut.

”They’ll end up using this to pay for Gonski and the national disability insurance scheme,” one senior figure said.

”There’s a nervousness and suspicion. We’ve been through this before with the mining tax.”

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