Abbott positions for defeat.

The image of Tony Abbott planting a kiss on the cheek of Pauline Hanson was too much for some of the Coalition’s most seasoned campaigners. “He needs a kick up the bum,” was the angry reaction of one who believes the former prime minister is making a fatal mistake. “Hanson can only take votes from us. We should be about winning elections not doing deals with the devil.”

But the fact is Abbott has given up on the Coalition winning the next election. Last weekend he told an invitation-only meeting in his Sydney’s northern beaches electorate that the government “is heading for a massive defeat”. The upside to this prospect, he told the 20 or so people present, was it that would “help the Coalition to rebuild”.

On Monday, the 29th losing Newspoll in a row hit, confirming the sort of trajectory that gives credibility to Abbott’s assessment. But the former prime minister says there’s no appetite to change the leader “even though the political situation is so dire”. He painted a picture of a “rubber-stamp party room” giving Malcolm Turnbull and his ministers “everything they want without debate”. He said he had never seen it this bad before.

Reports that Abbott was positioning himself to lead the Liberals again – after the election – were bolstered by his bizarre appearance with Hanson and his preparedness to launch her book. He told the One Nation leader, who adorns the cover of the book in the black burqa that so offended many in the Senate last year, that adversity had matured her. “You are certainly confirmation of that old adage that you are always better the second time around,” he said.

Abbott obviously doesn’t apply this adage to Turnbull, who became prime minister in his second shot at the Liberal leadership. When Abbott was asked if he was applying it to himself, he didn’t rule it out.

Abbott defended his about-face on Hanson by saying her preferences would be the “only way the Coalition could win the next election”. Twenty years ago he waged a relentless campaign against her, urged voters to put One Nation last and established a trust fund to bankroll a legal case against Hanson’s party. She blamed him for her jailing in 2003, for electoral fraud, a conviction that was later overturned on appeal. Hanson’s assessment of him then was scarifying: “Heaven help this country if Tony Abbott is ever in control of it. I detest the man.” But now she likens herself to Nelson Mandela, forgiving her jailer and getting on with it for the good of the nation.

It should give mainstream Liberals and Nationals pause for thought about the kind of country the two of them want. Abbott says Australia would be a “better country today” “if over the last two decades, we had been more ready to heed the message of people like Pauline Hanson”. He said, “Let’s face it, we should scale back immigration and we should be more proud of our country. We should build new coal-fired power stations because if it’s right to export our clean coal, it’s right to use it here … And we do have a problem with Islamism that does require decent Muslims to stand up to the ‘death to the infidels’ extremists.”

This trifecta of xenophobia, Islamophobia and climate change denialism certainly plays into the fears and prejudices of the 7 per cent who identify as One Nation voters in Newspoll. But hearing a senior Liberal politician normalising them is only to condemn a major party to this extreme minority view. Surely this is not a recipe for electoral success.

Hanson also won praise from Abbott for her support of the Turnbull government’s agenda in the Senate. She and her colleagues regularly line up with the Coalition, even when on paper the agenda would appear to be against the interests of the “battlers” Hanson purports to represent. The latest example was her support for the $35 billion second stage of the corporate tax cuts. These cuts would be worth $7 billion to the big banks, according to The Australia Institute, and would have to be paid for by squeezing welfare, health and education. Hanson claimed reluctance but signed up after winning a $60 million pilot project for 1000 regional apprenticeships. Very small beer in the scheme of things.

That support came despite Hanson herself agreeing that the big corporations wouldn’t raise wages but rather would follow the example of the big companies in America with share buybacks, executive salary increases and limited one-off bonuses for some employees. She says common sense tells you that, besides, in the United States the 21 per cent federal company tax rate is on top of states’ company taxes that aren’t levied in Australia.

Shorten upped the ante by promising to repeal the tax cuts for multinational companies and big corporations, many of whom pay no tax, if he wins the next election. Easier said than done, of course. Labor would have to win the support of the Senate to deliver, and who knows what it will look like after the poll. But Shorten is convinced the “enterprise tax plan”, as the Liberals call it, is politically toxic – a belief supported in a recent Essential opinion survey.

Even with One Nation’s support, the government fell two votes short of the 39 it needs for its legislation to pass in the Senate. Turnbull and Scott Morrison are now promising to have another shot when parliament comes back in May, convincing the two holdout independents, Derryn Hinch and Tim Storer. Hinch is looking to horsetrade on some of his pet projects for pensioners or low income earners but so far the government hasn’t won him over. Storer is another story all together.

He is a trained economist, a master of business administration and fluent Mandarin speaker with experience working on a World Bank project of the International Finance Corporation for three years. He fell out with the Nick Xenophon Team but was appointed by the High Court to fill the Senate vacancy created by the dual citizenship of Skye Kakoschke-Moore. It’s just his second week in the Senate but he’s certainly not wet behind the ears when it comes to the arguments over the corporate tax cut. He told the Senate he doubts the decision to reduce tax for all companies “is prudent to undertake in the face of Australia’s budget deficit and debt”. Tellingly, he said, “Even without the tax cut, I doubt our present tax system is sufficiently robust to support a medium-term fiscal strategy of budget surpluses on average over the course of the economic cycle”. He believes the benefits are far outweighed by the costs and sees better and more effective use of government revenue to generate prosperity and enhance fairness for the Australian people.

The government’s setback was ameliorated somewhat by the Labor Party needing to make some running repairs on its “carefully calibrated, well targeted and well designed” clampdown on cash payments for excessive tax credits on shares. The Opposition, after suffering two weeks of sustained attacks for targeting pensioners, announced all pensioners and part pensioners would now be exempt. Turnbull’s sledging of Shorten and shadow treasurer Chris Bowen in question time would make an Australian cricketer blush.

The prime minister said Labor calls it a “pensioner guarantee”. He asked from whom Labor was protecting pensioners? The ready answer: “The very policy shadow treasurer Chris Bowen designed himself.” Maybe Labor thought pensioners would give it a free pass given the government’s record of tightening the assets test and kicking 277,000 off the pension, as well as a raft of other cuts to benefits. But pensioner organisations quickly disabused Shorten of this view. He makes a virtue of the reworking, saying it makes a good policy better and that he has been listening.

It does show a political pragmatism shaped by a determination to remove obstacles to winning the next election. Old hands remember the arguments in the runup to the 1993 election, where Liberal frontrunner John Hewson took too long to take the proposed GST off food. Policy purity is one thing, losing the unloseable election, as that one was billed, is something Shorten doesn’t want to repeat.

There is no doubt the real target of the Labor policy was wealthier retirees using self-managed funds arranged in such a way to maximise cash rebates from the tax office for their share income. Except the recipient pays no tax to be rebated. The company pays the tax on the earnings before they are passed on as dividends.

And even after exempting almost a million pensioners, closing the loophole will still improve the budget position by $10.7 billion over the forward estimates. Bowen says 80 per cent of the benefit accruing goes to the wealthiest 20 per cent of retirees. “The top 1 per cent of self-managed superannuation funds received an average cash refund of more than $80,000 in 2014-15.”

The shortened parliamentary week ended without the government spending any time raising expectations about the imminent budget. The finance minister, Mathias Cormann, confirmed income tax cuts would feature in what will be the last budget before the next election, but that was about it.

His department’s figures suggest the bottom line will be in better shape than was projected just three months ago, but the treasurer will need to do more than rely on that if he is to enter into an auction with a cashed-up Shorten.

THE FACT IS ABBOTT HAS GIVEN UP ON THE COALITION WINNING THE NEXT ELECTION. HE SAID THE GOVERNMENT “IS HEADING FOR A MASSIVE DEFEAT”.