Hawke, in partnership with Treasurer Paul Keating, had pursued an ambitiously reformist agenda over the course of his time in office, which included floating the Australian dollar, reducing tariffs on imports and completely reforming the tax system.

However, the government's popularity dropped sharply throughout the course of its 1984–87 term, mostly due to a series of blunders such as its failed 'tax summit' (designed to gain support for Keating's proposed consumption tax), and declining terms of trade, which Treasurer Keating argued threatened to reduce Australia to the status of a banana republic unless tough measures were taken to correct the balance of trade.

In September 1985, Andrew Peacock, who had led the party to a surprising rebound in the 1984 general election, was replaced as leader of the Liberal party by the then Deputy Leader and Shadow Treasurer John Howard, after a botched effort to remove the latter from the Deputy Leadership and replace him with Queenslander John Moore, resulting in Peacock's resignation.

Moreover, Howard and National Party leader Ian Sinclair faced challenges from the right as well as the left of the coalition, in the form of Queensland premier Sir Joh Bjelke-Petersen.

Premier since 1968, Bjelke-Petersen was a hardline conservative who aggressively opposed the "socialist" Hawke Labor government, and believed that he could transfer the style of politics that had served him so well in his native Queensland to the federal stage.

[5] With his pool of supporters steadily decreasing, the likelihood of an effective challenge to the federal Coalition from Bjelke-Petersen began to collapse.

[6] [7] The 1987 federal election was called by Prime Minister Hawke six months early, to capitalise on the aforementioned disunity in the opposition.

The federal National Party also suffered a net loss of two seats, failing to expand upon its traditional rural base and hampered by disunity within its ranks.