By James Massola and Matthew Knott
The Turnbull Government is confident of striking a final-week deal to re-establish the construction industry watchdog, more than three years after Tony Abbott promised to deliver the policy.
As horse trading and negotiation continued with the Senate crossbench on Monday, Treasurer Scott Morrison also announced a deal to cut the backpacker tax from 32.5 per cent to 15 per cent - as proposed by Pauline Hanson's One Nation - rather than the government's proposed 19 per cent rate.
A vote on this deal, which will cost the budget $120 million over four years and raise $640 million rather than $760 million, is expected by the end of the week.
The additional $120 million cost would be dealt with in the mid-year budget update, Mr Morrison said, so that it would "wash its face" and ends an 18-month stand-off over the tax.
Nick Xenophon says the government is confident, so that must mean it is willing to compromise.
The deal was landed even as Mr Morrison and Prime Minister Malcolm Turnbull dismissed budget and policy advice from former prime minister Tony Abbott, and as Attorney-General George Brandis faced questions over a tax deal between Western Australia and the Commonwealth.
Government sources familiar with negotiations with the Senate crossbench over the Australian Building and Construction Commission bill believe there will be a deal before the end of the week.
Passing the ABCC and backpacker tax changes into law would build on the successful passage of superannuation law changes and the Registered Organisations bill last week and would put some wind in the government's sails ahead of the Christmas break.
Negotiations over the ABCC bill centre on demands from the Nick Xenophon Team for a better deal for South Australia over environmental water flows for the Murray River, while independent senator Derryn Hinch is demanding changes so the bill would not backdate the new law to April 2014, while also seeking stronger worker's safety provisions.
Those four votes, combined with the One Nation quartet and the vote of Senator David Leyonhjelm, will secure the numbers for the ABCC.
Senator Leyonhjelm offered support in exchange for a government promise that ABC and SBS will follow at least half their board meetings each year with open community forums, with two in regional areas, and for the government to take a "lead role" in reforming suppression order regimes that stop the media reporting court proceedings.
He described this change as a "freedom offsets" for the coercive powers contained in the ABCC bill.
Negotiations with the Xenophon team have been complicated by a dispute over whether an extra 450 gigalitres of water for the Murray River in South Australia, which is on top of the 2750 gigalitres set aside for the length of the river, would be delivered.
Victoria, South Australia and Queensland had flagged withholding that extra allocation because of the impact on communities upstream and appeared to have the backing of Water Minister Barnaby Joyce - which infuriated the NXT senators, the South Australian state government, and Labor and Liberal South Australian MPs.
Senator Xenophon threatened on Friday that all deals were off on other laws until the water issue was resolved, but appeared to soften his line on Monday after further negotiations with the federal government and South Australian government.
"I'm confident we will keep talking," he told Fairfax Media on Monday. "If the government is confident, then that must mean they are willing to compromise. However, if they think they have a deal, they are suffering from premature exaltation."
The agreement of the South Australian government to any deal is crucial to the NXT senators backing a water compromise, which could see oversight of the water issue allocated to Council of Australian Government level.
Nationals Leader Barnaby Joyce said the government was working with Senator Xenophon but his specific ideas to deliver greater water flows to South Australia had already been dealt with or could not be achieved.
These include increasing the capacity of the Menindee Lakes in NSW, which he said is already under way, and expanding the Yarrawonga levee in Victoria.