Lowest earners may keep carbon windfall

Low-income earners could be in for a windfall next year after the government lost an early bid to axe a second round of carbon tax compensation.

Labor, the Greens and crossbench senators voted on Wednesday to strip out the compensation from the debate on the carbon tax repeal bills.

While the vote does not guarantee the compensation will go ahead as planned, it gives a strong indication the bill will be supported when it comes to a final Senate vote.

The move is expected to cost the government $1.5 billion.

The key measure will lift the tax-free threshold from $18,000 to $19,400 on July 1, 2015.

There are also beneficial changes to the low-income tax offset.

The coalition argued at the election that the compensation was not needed if the carbon tax was no longer in place.

Finance Minister Mathias Cormann said Labor needed to outline how it would fill the $1.5 billion black hole caused by its decision to support the second round of carbon tax compensation.

"It is clear that Labor is in denial about the state of the budget and the imminent repeal of the carbon tax," Senator Cormann said.

"When the carbon tax is gone, there will be no need to provide additional compensation for a tax that will not exist."