Australian Prime Minister Julia Gillard forged an alliance with the Greens party on Wednesday to take her party closer to forming a government, but vowed not to allow the deal to change her plans for a tax on miners' profits.
Our election commitments are our election commitments, the Labor Party leader told a news conference. In the days since the election I've been asked will you change the Minerals Resource Rent Tax, and the answer of course is no.
Labor's widely expected agreement with the influential Greens party gives Gillard 73 seats in the 150-member lower house, bringing her level with the opposition conservative coalition but still three short of the majority required to rule.
A jostle for the support of four independent lawmakers who emerged from August 21's inconclusive election holding the balance of power could still drag into early next week.
Bookmakers shortened their odds on Labor forming a government after the Greens deal, though they were still well behind the conservatives, who have promised to scrap the mining profits tax and carbon-trading plans, and a $38 billion (24.7 billion pound) broadband project that could hurt dominant telecoms provider Telstra.
Despite Gillard's reassurances that policy would not be affected, the Greens could use their leverage to harden up her plans on both the mining tax and pricing carbon pollution.
It does lead to some nervousness. With Greens' control of the Senate it sets in motion less friendly business policies starting from mining tax to climate change, said Shane Oliver, head of Investment Strategy at AMP Capital.
The conservatives, who campaigned heavily on the threat of a Labor-Greens tie-up, charged that the deal would lead to early adoption of a carbon trade scheme Gillard had promised to delay until at least 2013 and after public consultation.
It demonstrates that the quest for power is now the only principle that the Labor Party holds dear, opposition leader Tony Abbott told a news conference.
What this means is there will be a carbon tax, there will be a higher mining tax. This is a party that deserves to lose, but which (Greens leader) Bob Brown has thrown a lifeline to.
If Labor prevails, the Greens deal would commit it to tackling climate change, holding a parliamentary debate on the war in Afghanistan and consulting on economic and budget issues.
So far financial markets have not been ruffled by the political uncertainty. Investors are more focussed on the risk that economic weakness in the United States and Japan could spill into Australia, undermining its relatively robust growth.
Data released on Wednesday showed that Australia's gross domestic product (GDP) rose by 3.3 percent in the second quarter from the same period in 2009, well above the 2.9 percent forecast in a Reuters poll.
As part of their agreement with Labor, which includes a future referendum on constitutional recognition of indigenous people, the Greens promised to ensure budget supply bills and back Labor in any no-confidence motions.
In return, the government agreed to a new climate change committee of politicians and experts to work out the best way forward for climate policy, with a view to putting a price on carbon emissions.
But more contentious issues, including the controversial mining tax, a price on carbon and gay marriage, were left out of the pact to avoid driving off more support for Labor from rural-based independents with conservative leanings.
The independents may take a few more days to decide whether to support Labor or the conservative coalition led by Abbott.
I think it might be a bit optimistic to say this week, but I would be very surprised if it went beyond Monday or Tuesday, rural-based independent Bob Katter told Australian television.
(Additional reporting by James Grubel; Editing by John Chalmers)