The federal government's controversial $7 Medicare co-payment appears dead in the water.
Clive Palmer delivered the government a fatal blow just hours before the first sitting of parliament after the five-week winter recess on Tuesday.
Palmer United Party senators voted unanimously against a GP charge "of even one cent".
Labor and the Australian Greens also oppose the unpopular payment.
"Any speculation that there will be one is just hot air," Mr Palmer told reporters after a strategic meeting with his senators.
But Treasurer Joe Hockey is not giving up just yet.
Asked if the GP co-payment was now dead, Mr Hockey told reporters: "No."
Prime Minister Tony Abbott also believes the co-payment should be passed in its current form, amid speculation the government is about to make concessions to garner support.
The co-payment setback came as the latest Newspoll showed the coalition had clawed back some ground against Labor.
Despite a gaffe-prone recess, the government at 49 per cent trails Labor's 51 per cent, one point higher than the last poll but still 4.5 points below its election result last September.
Finance Minister Mathias Cormann again warned that taxes might have to rise if the government's budget measures were rejected, saying it was just a mathematical reality.
But Mr Abbott insists the government doesn't have tax increases in mind.
"We don't support raising taxes - we support cutting taxes," he told reporters in Melbourne.
Indeed, taxes would come down in the future if the budget is brought under control through sensible savings made now.
He also defended comments by Agriculture Minister Barnaby Joyce that Australia is suffering a "financial melanoma".
"Barnaby's essentially right - if we don't get the budget back under control there will be long-term pain for the Australian people," he said.
But Labor is "not for turning" on measures such as the co-payment, universities and pension and welfare reforms.
"We're not going to allow what's unfair to pass," Labor's Senate leader Penny Wong told ABC radio.
Shadow treasurer Chris Bowen said Labor had been consistent in this approach, unlike the confused rhetoric coming from the government.
Steve Ciobo, parliamentary secretary to the treasurer, hit back, saying Labor's only consistency was in poorly managing the economy.
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