Helen Clark appears poised to seal a deal with Winston Peters' party that will give Labour the ability to govern with a clear majority.
New Zealand First has said it would offer the election winner support on vital votes of confidence and supply instead of abstaining, if it were in
the interests of forming a stable Government.
As the price of positive support, NZ First is expected to get policy trophies, key among them an increase in the superannuation rate that Finance Minister Michael Cullen called "ruinously expensive".
It is thought that Labour has raised the issue of Mr Peters taking a ministerial post to lock him into a closer agreement. But Mr Peters has been adamant that his party would not go into coalition this term, which appears to rule out a ministerial role.
With the two biggest smaller parties on side - NZ First's seven seats and the Greens' six - a Labour-Progressive minority Government would have 64 votes to 57 on crucial confidence and supply divisions in a Parliament of 121.
Labour's optimism over a deal was evident in two statements issued yesterday by Helen Clark after she and Dr Cullen met Mr Peters and his deputy, Peter Brown.
Both statements referred to NZ First's role in providing stable government. Helen Clark's office said Mr Peters had approved them both.
The first statement acknowledged "the critical part" NZ First had to play in arrangements "to ensure stability" over the three years of the Parliament. The second said the talks had continued yesterday and the parties had "agreed that NZ First has a vital contribution to make to the stability of the incoming Government".
Talks continued at chief-of-staff level in the afternoon and even though Helen Clark headed to Invercargill for the premiere of The World's Fastest Indian, the film about New Zealand motorcyclist Burt Munro, she issued the second statement after 6pm. She is expected to hold further talks with Mr Peters and the Greens today.
Labour is developing separate agreements with each party which will be shared at their conclusion, possibly today.
Parties will have the chance to view each other's agreement but not the right to change them.
Labour - with the Progressives and the Greens - could govern without NZ First but only with Maori Party and United Future support.
Labour's need to rely on NZ First has become increasingly evident with the Maori Party's flirtation with National and United Future's leanings towards National.
It emerged yesterday that National leader Don Brash met jointly with Maori Party leader Tariana Turia, United Future's Peter Dunne and Mr Peters on Tuesday. Their combined numbers could form an alternative Government.
Mrs Turia would not confirm suggestions yesterday that she had initiated the meeting.
Mr Peters pledged during the election campaign to try to do a deal with the party that had the largest vote.
National MPs have been privately suggesting that he made that pledge when National was ahead in the polls and that he would stall talks with Labour for days, if not weeks.
Helen Clark confirmed yesterday that the Speaker's role has formed part of the discussions.
However she would not comment on the specifics of National's bid to install Clem Simich.
She defended the progress of the talks saying: "We're working on it as hard as we can."
Winston Peters and Helen Clark have been in talks. Bradley Ambrose / Getty Images, Mark Mitchell
Helen Clark appears poised to seal a deal with Winston Peters' party that will give Labour the ability to govern with a clear majority.
New Zealand First has said it would offer the election winner support on vital votes of confidence and supply instead of abstaining, if it were in
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