Malcolm Turnbull's bid to hang on to the prime ministership has received a boost after crossbench MP Bob Katter announced he would give confidence and supply to a returned Coalition government.
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But the Coalition's hopes of reinstating the union-busting Australian Building and Construction Commission appear dashed, with Mr Katter warning "if there is the slightest hint of union-bashing, I can assure you all bets are off".
The latest Fairfax Media projection is that the Coalition will secure 73 seats, Labor 66 seats and five crossbenchers will be elected, while six seats remain too close to call.
Mr Katter's decision gives the Coalition a notional 74 seats on the floor of the Parliament - just two short of the 76 required to form government. As counting continued on Thursday, a Coalition government, either in minority or with a razor-thin majority, still looked the most likely outcome.
The government's position in five of the six "too close to call" seats - Capricornia, Forde, Flynn, Herbert, and Hindmarsh - improved as postal votes were counted, but Labor's hold on Cowan looked solid.
Absentee, provisional and pre-poll votes are expected to trend back Labor's way and partially offset Coalition gains and strategists on both sides believe counting may not conclude until next week, and that recounts - automatically triggered in seats decided by less than 100 votes - are inevitable.
Ratings agency Standard & Poor's delievered a stark warning to both sides of politics as it cut the outlook on Australia's coveted AAA credit rating, citing the unresolved federal election result and the increased difficulty in achieving structural budget repair in a tight Parliament.
In a show of unity from the federal opposition, Bill Shorten's chief potential rival for the Labor leadership, Anthony Albanese, will make clear that no one should challenge the leader when the Labor caucus meets in Canberra on Friday.
Talk has already turned in the ALP to likely minor changes to the front bench, with former NSW deputy Labor leader Linda Burney mentioned in dispatches.
After meeting Mr Turnbull in Brisbane, Mr Katter said: "We do not want to go back to the polls, that should not be imposed upon the Australian people.
"So, today we are announcing our support by supply and confidence for a Turnbull government. I do so with no great enthusiasm," he said, adding that he maintained "my right to move at any point in time in another direction".
Mr Katter said he would work closely with NXT party leader Nick Xenophon, who now controls three Senate seats and the crucial lower house seat of Mayo in South Australia, while listing more dams in Australia's north, more rail lines and "numerous other issues" on his wish list.
Mr Turnbull, who has also spoken to Senator Xenophon and crossbench MPs Cathy McGowan and Andrew Wilkie, welcomed the promise of supply and confidence from the Queensland independent and the pair had a "common commitment to strong development, particularly in Northern Australia and particularly with respect to water infrastructure".
"We are seeing positive trends in a number of seats but the counting will have to be concluded before we know the final result . . . I remain confident that we will form a government and we will do so and will unite the Parliament, so far as we are able to, unite the nation in a common purpose," he said.
Senator Xenophon told Fairfax Media he would work with Mr Katter on certain issues and that he remained open to striking a deal with Mr Turnbull.
The Prime Minister and the South Australian senator met on Wednesday and discussed saving the state's Arrium steel works, Senator Xenophon said. Gambling reforms, stronger anti-dumping laws and more stringent rules for Commonwealth government procurement were also on the table.
"We have given no guarantees, no deal has been struck, there will be further discussions and we will work through the process," he said.
Mr Shorten said it seemed likely the Prime Minister would be "dragged across the line" but that his problems were only just beginning, pointing to unhappy conservatives in his ranks as well as restive Nationals, who wanted a larger say in the Coalition's second-term agenda.
If he "fell across the line", the Opposition Leader said, "it will be with a diminished authority, a diminished mandate and a very divided political party".
Labor's lead in in the South Australian seat of Hindmarsh fell from 151 votes to just 68 votes with 3100 ballots to be counted, setting up a nail-biting finish, but both sides of politics believe absentee votes will be particularly strong for Labor, making it a Labor gain.
Queensland trended the Coalition's way, with its lead in Forde growing from 264 votes to 687 votes, with 9895 ballots left to count; Labor's lead in Flynn fell from 1065 votes to 646 votes with 9516 ballots left to count (up from 7312 votes earlier on Thursday), Labor's lead in Capricornia fell from 732 votes to 476 votes with 9328 left to count and in Herbert, Labor's lead fell from 620 votes to 449 votes with 8361 votes left to count.
Cowan, in Western Australia, looked increasingly likely to be a Labor gain though, as the ALP's 784-vote lead is held with just 5908 votes left to count (up from 3575 votes earlier on Thursday).
