Bob Hawke had been leader of the Labor Party since 3 February 1983, and Prime Minister since the 1983 election, with Labor winning a record four elections under his leadership. The unexpectedly close win at the 1990 election, coupled with the deepening economic recession, fuelled tensions within the government over economic policy. A re-energised Liberal opposition led by John Hewson, a qualified economist, gained ground in the opinion polls. Hawke had alienated key NSW Right powerbroker Graham Richardson in late 1990, with the latter bluntly telling Hawke he no longer had the support of the Right. He also reneged on an agreement with Paul Keating, known as the Kirribilli agreement, that he would hand over the leadership to him following the 1990 election. On 3 June 1991, Keating challenged for the leadership, but lost in a 66-44 vote and moved to the backbench.
By late 1991, Hawke's public support fell to new lows as the Australian economy showed no signs of recovering from the recession and the opposition Liberals launching their Fightback! economic policy. The final straw was when Hawke sacked Keating's successor as Treasurer, John Kerin for his perceived communication weaknesses in early December. Keating supporters began a campaign to undermine Hawke's leadership.