The Labor government of Premier Joan Kirner, who had replaced John Cain on 10 August 1990, was defeated in a landslide by the Liberal–National Coalition led by Jeff Kennett and Pat McNamara, who had campaigned on comprehensive economic and structural reform as well as changes to industrial relations.

At the 1988 state election, the Labor government had won a third term, gaining 46 of the 88 Legislative Assembly seats, but was sent reeling by a budget crisis.

Prospects for a fourth Labor term became even more remote when Kennett's supporters launched a party room coup that returned him to the leadership on 23 April 1991.

The Labor government, in power since the 1982 election, was dogged in its final term by a series of scandals and major corporate collapses which, like neighbouring South Australia, extended and deepened the early 1990s recession in those states.

Unemployment reached 11.6% in Victoria in March 1992, with the manufacturing and textiles sector being particularly affected, while state debt was estimated at A$30 billion.

[4] The State Bank of Victoria, the Victorian Economic Development Corporation (VEDC), Tricontinental and Pyramid Building Society failed, whilst the government-backed WorkCare insurance scheme was not in good shape.