QUEENSLAND Labor will have to commit to funding regional infrastructure at the expense of the fast-growing south-east corner if it wants to win over the Katter's Australian Party and form a minority government.
But a ratings agency warned Queensland's attempt to win back the AAA credit rating could be at risk from the death of the government's $37 billion privatisation plan.
The Liberal National Party on Monday dropped its support for the plan as part of a last-minute attempt to win over two Katter's Australian Party MPs, who hold the key to forming a minority government in Queensland.
Standard and Poors' credit analyst Anna Hughes said cancelling asset sales would make it harder for the government to pay $80 billion in debt and repair the budget.
"It's definitely a harder task because they have taken something off the table which would have paid down a substantial amount of debt in a short period of time," she told The Australian Financial Review.
"It essentially gives the government less levers to pull. There's no threat to the [current rating of] AA+ but it does mean if they want to return to AAA they really only have revenue and expenditure to look at."
Queensland lost the AAA credit rating in 2009 and was looking to return to the top rating once it paid down $25 billion in debt over the next three years. Labor leader Annastacia Palaszczuk is still shaping as the most likely premier, but she will also have to turn to the cross-benches because the ALP looks set to get 43 seats, short of the 45 seats needed to form majority government.
Former Queensland deputy premier Jeff Seeney on Monday confirmed he had resigned from the LNP leadership team. He backed Mr Nicholls and former leader Lawrence Springborg to form the new leadership team.
Katter's Australian Party leader Rob Katter, the son of federal MP Bob Katter, said he was willing to negotiate with the ALP and LNP, but not an LNP leadership team that included Treasurer Tim Nicholls, the asset sales architect.
They have had initial discussions with both major parties but have vowed to make sure there is no spending on "vote-buying" infrastructure like sports stadiums or road and rail tunnels in south-east Queensland.
"We have a list of priorities which we will present to both sides and whoever meets those requirements we will be obligated to support," Mr Katter said.
The Katter's Australian Party campaigned against asset sales, a mandate for a 10 per cent ethanol fuel, rural debt financing and less investment in large scale infrastructure projects in Brisbane. Despite campaigning for $37 billion in privatisations to pay debt and build much-needed infrastructure, Mr Seeney confirmed the party was dumping the policy.
"We went to the people of Queensland seeking a mandate for asset leases and we didn't get that mandate. So the question is gone completely," he said.
"So whichever scenario plays out in the next few days with forming government, I don't think asset leases will be a party of the agenda."
Mr Seeney said neither the ALP or the LNP would be able to form majority government. The LNP will meet this week to elect a new leader. It is shaping as a contest between Mr Nicholls and former leaders Mr Springborg and John-Paul Langbroek. Former speaker Fiona Simpson has put her name forward but will not have enough support.
Mr Seeney said a minority government would be a disaster for Queensland and threaten jobs and the economy. He said it was unlikely a minority government would be able to survive a full parliamentary term.
"I'm very fearful of what will happen over the next three years. Irrespective of who forms a government, that government is going to be unstable and is not going to provide the confidence for the investment community and fire up the economy and create jobs," he said.
He said big infrastructure projects such as Galilee Basin mining projects and the new Brisbane casino would not go ahead under a Labor government.
Business and industry leaders expressed concern about the future of Queensland's economy.