Jacqui Lambie names the $157m price of her support for income tax package

The Morrison government is preparing to negotiate a $157 million demand from Tasmanian independent Jacqui Lambie to help her state on public housing in return for her vote on sweeping income tax cuts that could be decided on Thursday night.

The government declared it was "happy to engage" in the talks after Senator Lambie called on the federal government to cancel the debt owed by the Tasmanian government for past investments in social housing.

Senator Jacqui Lambie has demanded the Morrison government waive a Tasmanian government debt in return for her vote on income tax cuts.Credit: Dominic Lorrimer

The demand is the first sign of Senator Lambie's willingness to use her new position as a key swing vote in the Senate to extract benefits for her state, maximising her leverage as the fourth and possibly final crossbencher to back the tax plan.

Finance Minister Mathias Cormann responded to her demand on Wednesday afternoon by leaving room to negotiate with Senator Lambie and others.

"We are always happy to engage with Senators in relation to issues of concern to them and their constituents," he said in a statement.

"We call on Labor and all other non-government senators to act in the national interest by supporting our income tax reforms in full."

Tasmania's social housing debt is equivalent to 0.1 per cent of the $158 billion value of the income tax cuts over 10 years.

The pressure to negotiate comes two weeks after the government signalled it would not do deals with the crossbench to pass the package.

One Nation leader Pauline Hanson said on June 20 that Senator Cormann had ruled out doing deals.

"He gave me a phone call and he said 'I'm not negotiating with crossbenchers on this at all'," she said.

The government is confident of gaining support from three Senate crossbenchers – Cory Bernardi, and Centre Alliance's Stirling Griff and Rex Patrick – but needs four to pass any legislation if Labor does not agree.

"People in Tassie are doing it tough and for them $1000 in their back pocket now will give them some immediate relief," Senator Lambie said in a video posted on Facebook.

"But there are thousands of Tasmanians who are on the pension, Newstart and don't earn enough money to pay tax, and they don't see any benefit from a tax cut."

Senator Lambie said Tasmanian families were sleeping in cars, parks and tents during winter and needed more help from the federal government, which currently charges the state government money to repay old debts on social housing investments.

"The State of Tasmania owes the Federal Government $157 million in social housing debt. Tasmania is paying 50 cents in every dollar of our state housing budget back to the Federal Government in interest and debt repayments," she said.

"That means we are building half as many homes, helping half as many people."

Illustration: Matt GoldingCredit:

Senator Lambie said the Commonwealth did not need the $15 million it was collecting from Tasmania every year when families needed help with housing.

"It's only by having the balance of power for Tasmania in the Senate that real debt relief is going to happen and that's what I am here to fight for," she said.

"There is no way in good conscience I can vote for substantial tax cuts without making sure that the people who so desperately need a roof over their heads aren't left to go without.

"This isn't going to fix every problem in Tasmania, but it's a start. It would free up enough money to find a home for 3000 people on the critical list through accommodation and casework.

While Senator Lambie accepted the need for an economic stimulus through income tax cuts, she made it clear she would use her position in the Senate to extract more for Tasmanians.

"I'm here to use the balance of power for them, and to make sure that we don't let people in rural and regional areas continue to slip through the cracks."