“We will not be taking the tax cuts for larger companies to the next election,” Mr Turnbull told reporters.
The policy reset comes as the prime minister stares down a looming second leadership challenge from Peter Dutton, the former Home Affairs minister.
The prime minister defeated Mr Dutton by 13 votes in a snap Liberal leadership ballot on Tuesday and called for party unity.
But a string of resignations from the Turnbull frontbench has further destabilised the government, as ministers revealed they supported Mr Dutton and felt compelled to resign.
Mr Turnbull has refused to accept most of their resignations, instead trying to heal the wounds of division.
"The iron laws of arithmetic confirmed my leadership of the Liberal Party," Mr Turnbull told reporters, a reference to Mr Dutton's comment that "arithmetic was against him".
Focus on small businesses
The government already secured cuts for smaller companies, below $50 million in annual turnover, but wanted to extend the cuts to all companies.
The bill was voted down by Labor, the Greens and the majority of the crossbench, including Pauline Hanson’s One Nation.
Instead, the government will work on accelerating the tax cuts for smaller businesses.
While the government has already legislated a drop from 30 percent to 25 percent, the reduction will phase in gradually and will not be complete until 2026.
“We are going to review our enterprise tax plan in so far as it applies to small and medium businesses and focus on how we can provide enhanced support, or perhaps an acceleration of the tax cuts for the small and medium businesses,” Mr Turnbull said.
The government will also abandon its plans to scrap the energy supplement. It previously supported removing the subsidy because it was designed to compensate the Gillard government’s carbon tax, which no longer exists.
The backflip comes after Mr Dutton spent Wednesday morning outlining his own ideas to bring down energy prices, including scrapping the GST on power bills and calling a Royal Commission into the pricing activities of power companies.
Mr Turnbull said the proposal to scrap GST would be “certainly very expensive”.
Earlier today, Peter Dutton gave his clearest indication yet that he intended to challenge Malcolm Turnbull for the prime ministership a second time.
The former Home Affairs minister was asked if he was “working the phones” to try to convince the seven colleagues he needs to tip the leadership ballot in his favour, based on Tuesday’s partyroom vote.
“Of course I am, I am speaking to colleagues,” Mr Dutton told 3AW Melbourne.
Meanwhile, Treasurer Scott Morrison emerged as a potential leadership contender - something he denied when asked by reporters if he was the consensus candidate his party needed.
Now a backbencher, Peter Dutton is no longer constrained by the convention of cabinet unity and has set about outlining his alternative policy agenda in a series of radio interviews.
On Tuesday, he suggested further cuts to immigration to allow Australia’s capital cities more time to “catch up” to infrastructure demands.
On Wednesday morning, he told Melbourne’s Triple M radio he would remove GST from electricity bills.
He also suggested a Royal Commission to investigate “electricity companies and the fuel companies”.