Within the Turnbull government there is gnashing of teeth in the wake of the Nick Xenophon Team (NXT) giving the thumbs down to the omnibus bill.

This bill includes the childcare reform package and trade-off savings in cuts to family tax benefits. It also has a raft of other measures that the government had previously been unable to pass, among them a four-week wait for unemployed young people seeking income support.

By this week, the NXT – whose support was crucial to pass the legislation – was heading to opposing the bill anyway. But Monday’s announcement that A$3 billion of savings from the bill would be hypothecated to help pay for the National Disability Insurance Scheme (NDIS) gave it an added justification.

The announcement, at a joint news conference by Treasurer Scott Morrison, Social Services Minister Christian Porter and Education Minister Simon Birmingham, was designed to increase the pressure on the crossbench. But all it did was put pressure of a different kind on the government.

It was soon portrayed as a reprehensible use of the disabled as a bargaining chip. As the NXT said in its Tuesday statement, it was considered to be “‘robbing Peter to pay Paul’ and viewed in the same way as holding childcare reforms hostage to family tax benefit cuts”.

“As a negotiating tactic, this is as subtle as a sledgehammer,” Nick Xenophon said.

Porter wore much of the public odium. But the hypothecation idea had come from Morrison.

Interestingly, there had been some resistance from the Prime Minister’s Office (PMO) to the timing of announcing it.

The PMO urged caution. It was felt that the government’s selling of the childcare package was going well – so why introduce this new element now? But Morrison, for whatever reason, was insistent.

The message at the press conference was that Labor had not fully funded the NDIS and that if the omnibus bill’s savings were not tipped into the NDIS bucket, then the government would have to look elsewhere for the money, because it was committed to funding the disability scheme.

When the omnibus bill was announced last week, the government was “fingers-crossed” confident it would pass, albeit with horse-trading and more concessions than those it already contained.

As it turned out, the omnibus form – the move to have a mega bill came from Morrison – alienated the NXT. It didn’t like the measures being wrapped together, when it had been negotiating item by item.

There had been extensive discussions over a long period with the crossbenchers, including with both the NXT and Xenophon alone. So when Xenophon rang the government on Monday night to inform it of what he planned to say, his rebuff came as an unpleasant shock.

There is a belief in the government that Xenophon might have been more amenable to the core of the omnibus bill than others in his team. There are two NXT senators besides him and one lower house MP, in the all-South Australian four-member team.

Rebekha Sharkie, the NXT spokesperson on social services, represents the Adelaide Hills seat of Mayo and is tuned in to families who would lose out from the paring back of the family payments. On her calculation, more than 7,500 families in Mayo would be hit by the change to Family Tax Benefit Part A alone.

The “no” from the NXT is a serious blow for the government, which has been starting to build a narrative that it can get things through this new Senate.

It’s vital for Malcolm Turnbull to convince voters he can deliver on policy. Delivery, incidentally, can also be used as a justification for a double dissolution that let four One Nation senators into parliament.

The government will now try to salvage what it can of the savings in the bill. But Porter has acknowledged they will be minor. Apart from rejecting the family tax benefit cuts, the NXT opposes imposing the wait on young people for income support and the revamping of the paid parental leave scheme.

The omnibus bill will go to a Senate inquiry as it wends its path to an eventual vote, so there is some way left in the process.

But, as things stand, this is a dead bill walking – and the government’s budget has become that much harder to put together.