Fran O'Sullivan: National's resurgence on tax promises rings wake-up call for Clark

Here's a prediction: Tax cuts will be on the agenda whether it is Helen Clark or Don Brash who finally gets to bring home the bacon once special votes are counted and horsetrading over the makeup of the so-called "stable coalition" government is done.

The huge support Brash received at the polls - by running Clark to within one seat of her political life - coupled with the support tax-cutting programmes have attracted from parties ranging from Jim Anderton's Progressives (company taxes), United Future, the Maori Party, and even NZ First (if the costings stack up) means Labour can hardly take a neanderthal approach if it wants a fighting chance of a fourth term.

A rash of reports in the past few days float the notion that Clark had favoured personal tax relief before the May Budget to offset the already generous Working for Families package.

At least two reports paint Finance Minister Michael Cullen as the ogre who stood in the way of Clark's proposal that the Budget should offer more: "She said yes - He said No". But he finally agreed to a paltry indexing of tax rate thresholds three years later after some arm-twisting.

The reports were unsourced. But they had certainly been well informed.

Toss in Clark's admission on Saturday night that the election has polarised the country and her pledge to run a more inclusive regime. Then overlay those statements against the obvious softening-up exercise that the Beehive has underway. It does not take a leap of logic of Einstein magnitude to figure out what Clark's next incursion into enemy territory will be.

It's the type of pragmatic response - stealing her opponents' policies when they resonate with Labour's focus groups - that characterised Clark's first six years as PM.

She is skilful enough to "wash" through some preliminary moves in coalition negotiations, then give them teeth later by the useful release of existing Treasury advice recommending personal tax cuts to spur economic growth.

Watch also for the expansion of the Working for Families programme (another 60,000 families on Labour's election bribe), the wiping of student loans interest, and any real tax relief - to be properly costed by Treasury against prospective Budget revenues. There is "wriggle" room for some reworking of priorities.

Cullen has flagged that a future Labour government may need to cut the company tax rate - to at least match Australia's 30c headline rate - to maintain regional competitiveness. His preference would be to offset any lost direct tax revenue from other indirect business taxes.

So it is indeed possible that the business sector may still get to see movement on this score by the 2008 deadline National had pledged, even if Brash and his finance tyro, John Key, don't get to sit on the Treasury benches.

It is no secret that most business owners supported National's policies at this election - they speak the same language, although Cullen is hugely respected for his fiscal prudence. Clark basically recognised this by specifically mentioning the business sector in her pledge to run an inclusive government.

It was smart politics.

A Labour-led government could go astray if the Greens get difficult on infrastructure issues such as roading and energy. There is a majority across major party lines (Labour and National) for investment to be stepped up to stop capacity constraints hindering growth rates. Likewise on free trade.

Clark will need to use all her skills to keep the Greens in check.

In the meantime, Brash is right not to concede defeat.

Labour is still clearly odds-on to retain its position as the highest polling party.

But there is an outside chance that National will overtake Labour on the party votes.

If so, all bets are off.