The Labor government was defeated by the Coalition, with the latter winning 61 seats of 88 contested in the Assembly on an 8% swing against the Government, and 17 of 22 in the Council with a swing of over 9%. This did, however, represent a considerable improvement in the Government's stocks from the 22-25% indicated in opinion polls in 1990 and 1991. The Liberals made gains primarily in the eastern suburbs of Melbourne as well as provincial Victoria. The Liberals actually won 52 seats, enough for a majority in their own right. Although Kennett did not need National support in order to govern, the Coalition was retained.
Both the government and opposition had gone through changes during the 1988–1992 term of Parliament. 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. 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. The Liberal party commenced an advertising campaign in January 1992 with the slogan "Labor: the Guilty Party".
The 1990 federal election was the first major sign that all was not well for VIctorian Labor, with the Coalition gaining nine seats at Labor's expense. Ultimately, John Cain resigned on 7 August 1990, and on 10 August, Joan Kirner was elected leader. Despite her own personal popularity, support for the government had fallen to 22% by December, with analysts citing concerns over the state debt, lack of confidence in Victorian financial institutions, industrial relations problems and the severity of the recession's effects in the state as the primary reasons for the low ratings.
Meanwhile, on 23 May 1989, Jeff Kennett was dumped as leader of the Liberal Party by his colleagues in favour of Alan Brown; Brown led the party until 23 April 1991 when he was himself dumped in a party room spill. During Brown's period as Opposition Leader, the Liberals negotiated the first coalition agreement with the Nationals in over forty years, in part due to a belief by some (in spite of what political scientist Brian Costar called a "lack of psephological evidence to support this assertion") that had the parties been in coalition at the election, they would have won.