Alex Salmond yesterday faced a balancing act: a legislative programme meaty enough to look busy and keep MSPs from mischief-making, but which is not so ambitious that it risks defeats and advertises the vulnerability of his minority administration.

His first year in power showed he could afford to lose votes - on education and buses just before summer recess - but he cannot afford to do that too often. The debacle over the Creative Scotland Bill, kicked out because of inadequate financial planning, was an unnecessary embarrassment Mr Salmond could do without, now forcing the Scottish Government to find a convoluted route for setting up the arts agency by other means.

The First Minister executed his legislative tight-rope walk with a Master of Ceremony's aplomb, his energy and bombast undiminished over summer and new Labour and LibDem opponents to torment and woo.

The new LibDem leader, Tavish Scott, requires careful handling, as that relationship is vital to any SNP hopes of getting its local income tax approved. That bill may not see the light of Holyrood day until well into next year, and the crucial votes may be more than a year away. But yesterday, the issue was confirmed as the key battleground of this four-year parliament, with Labour and the Tories as eager to attack the local income tax proposals as the SNP is to attack the "hated" council tax.

After some speculation that Mr Salmond would ditch his local tax plans as unwinnable, his statement to MSPs made clear he was happier to take the risk of defeat. Backing down would have been out of character. But this is also because Mr Salmond sees an opportunity to turn the row to his political advantage, against opponents at Holyrood as well as the Labour government at Westminster.

The row with Westminster turns on the £400m of council tax benefit that Labour ministers say would be withdrawn if there was no council tax in Scotland. The SNP argues that welfare money should be made available for deployment in different ways.

It has been helped in recent weeks by acting Labour leader Cathy Jamieson making the case for keeping the £400m coming to Scotland, even if there are more minor reforms to council tax that could jeopardise it.

Westminster refusal would blow a large hole in the budget plans for local income tax, and would probably sink them. That would be the first part of the blame game if the plans fail.

The other part of Mr Salmond's strategy is to turn the attack on those parties, Labour and Tory, that prefer to keep the council tax, albeit with reforms. Having made claims of 85,000 people lifted out of poverty, average families saving between £350 and £535 and eight out of 10 households better off (he forgot to add "or no worse off"), he went on: "I have no doubt Scotland will judge harshly any MSP who votes to keep the council tax in the face of the overwhelming benefit that would flow to millions of ordinary Scots."

So the strategy is clear and in parallel with his independence referendum plans. If Labour and Tory thwart him on these flagship policies, he will use the 2011 election campaign to paint them as being against change, stalwarts for the "hated" council tax, while refusing to let Scottish voters have a say on the nation's future.

For that reason, Labour's next leader will have to move swiftly to fill the gap where a council tax reform plan should have been during last year's election campaign.

The team has dusted down the Birt Report on council tax reform, looking closely at whether it offers an answer. It recommended a tax based directly on the value of a home rather than council tax bandings, and a device to help low income pensioners pay the bills by borrowing the sum monthly against the value of their houses. Labour is determined to stick with property-based tax as a proxy for wealth.

The SNP's best hope for passing its tax reform is with the support of 16 LibDem MSPs and a couple of Green votes. Greens want their preferred land value tax examined seriously before they commit to SNP plans, and they could tie support to concessions elsewhere. For instance, they want aviation and annual targets included in the Climate Change Bill.

LibDems are focusing their concerns on the SNP's local income tax being set at a national rate of 3p in the pound. They want it to be set by each of the 32 councils, making councillors locally accountable, but the SNP is against that for reasons of "equity and convenience".

This is the issue to watch. For senior LibDems and some in the SNP who want to get out of the local income tax commitment as being too financially and politically costly, that offers a useful get-out clause.