Australia ignored advancing recession and turned into party zone central at the start of 1988.

The bicentennial celebrations began on New Year's Day with Australia Live, a four-hour telecast featuring crosses to Thursday Island, The Lodge, Kakadu, Antarctica, and the Indian Pacific and appearances by an eclectic cast that included Graham Kennedy, Ronald Reagan, Margaret Thatcher, Paul Hogan and Derryn Hinch. Julie Anthony closed with the National Anthem in front of the soon-to-be Old Parliament House.

On Australia Day, the First Fleet Re-Enactment Voyage sailed into Sydney Harbour observed by a far greater number than the original: two million-plus lined the shore, making it the biggest-ever gathering of locals. Meanwhile another 40,000 marched to Hyde Park calling for land rights.

Only three months earlier the sharemarket had crashed. But the partying was unstoppable. Median house prices were soaring – Sydney's jumped from $141,000 to $170,850 between 1988 and 1989 (Melbourne's $109,000 to $132,00 and Canberra's $101,250 to $115,000) – and even Brisbane got into the mood in April with World Expo 88. The Queen arrived to conduct great openings: the new $1.1 billion Parliament House, Queensland's Stockman's Hall of Fame and the Darling Harbour redevelopment.

But some shadows fell on the celebrations.

The Royal Commission into Aboriginal Deaths in Custody was running and the Grim Reaper advertisements had raised public awareness that AIDS was not just the gay community's problem.

The Conciliation and Arbitration Act which had seen employers and unions battle over conditions since 1904 was replaced by the Industrial Relations Act and referenda on four-year parliamentary terms, recognition of local government, trial by jury, and freedom of religion were defeated.

Prime minister Bob Hawke in 1988 promised to hand his job to treasurer Paul Keating after the 1990 election in what became known as the "Kirribilli Agreement". Only four knew about the deal. Hawke also attracted attention for openly weeping twice, once over the massacre of students at Tiananmen Square and once over infidelity to his wife.

In the end, Hawke was to renege on the Kirribilli deal but if Labor's leadership succession was a fight in the making, the Liberal Party's continuing brawl between John Howard and pretender Andrew Peacock was great public sport until the Victorian rolled his leader in May 1989. Later that year, the Communist Party of Australia, once the great boogie man of Australian politics, decided to disband.

Smaller time politics continued its meandering way.

Nick Greiner saw off Barrie Unsworth to end Labor's 12-year hegemony in NSW in 1988; Labor's John Cain defeated Jeff Kennett a second time with the Victorian Liberals suffering from his bull-in-a-china shop personality and federal Coalition instability; West Australian premier Brian Burke departed for the sanctuary of an Irish ambassadorship, leaving the WA Inc mess to Peter Dowding.

The following year, Dowding kept the dirt under the carpet to win his first election, Rosemary Follett became the first ACT chief minister and the Tasmanian Liberals lost a vote of confidence leading to an unsteady government alliance between Labor and Bob Brown's Greens. Meanwhile in Queensland, the first Labor government in 32 years was elected as the sins of the Bjelke-Petersen era were visited on the Nationals.

A few months before the state election, in June 1989, the report of the Fitzgerald inquiry into Queensland corruption during the Joh years was released and eventually resulting in the jailing of politicians and police.

On larger 1989 political canvases, Chinese shot Chinese in Tiananmen Square, the Dalai Lama was awarded the Nobel Peace Prize, the Berlin Wall fell, Russia pulled out of Afghanistan after nine years' war and the Libyans blew up Pan Am Flight 103 over Lockerbie, Scotland, killing 270.

In September 1988 Lindy and Michael Chamberlain's convictions on charges relating to the disappearance of their daughter Azaria eight years earlier were quashed. The following year Timothy Anderson and Evan Pederick were arrested over the 1978 Hilton Hotel bombing.

In October 1988, the growing and destructive nature of Victoria's crime families erupted onto the national stage    with the murder  of two young constables in Walsh Street, South Yarra. The gangland war continued for years.  The following January, Australian Federal Police Assistant Commissioner Colin Winchester was shot and killed in his Canberra driveway.

Nineteen people died into two separate hot air balloon accidents in the Northern Territory and Victoria. Thirty-five died when two buses crashed north of Kempsey just before Christmas 1989. Six days later, 13 were killed when an earthquake struck Newcastle.

Much happened in sport.

Boxers Jeff Fenech and Jeff Harding and surfers Damien Hardman and Pam Burridge won world titles; Australia scored three golds at the Seoul Olympics; Allan Border's team won the Ashes in England for the first since since 1934; walker Kerry Saxby kept breaking world records; and Melbourne's National Tennis Centre opened in 1988, as did the Sydney Football Stadium. The following year, the Victorian Football League became the Australian Football League.

Among noted deaths were former prime minister Sir William McMahon, Aboriginal leader and former South Australian governor Sir Douglas Nicholls, writer Kylie Tennant, and artists Lloyd Rees and Donald Friend.

Bill Medley and Jennifer Warnes' (I've had) The Time of My Life and Madonna's Like A Prayer were the top singles of 1988 and 1989. Filmwise, 1988 saw Rain Man, Crocodile Dundee II, Who Framed Roger Rabbit the top grossers. The following year Indiana Jones and the Last Crusade, Dead Poet's Society and Batman were the monsters.

In 1988 Lake Eyre filled with water and the Acacia pycnantha was proclaimed as Australia's official floral emblem. The following year Australia's population stood at 16,957,100, the home loan rate hit 18 per cent and the partying was truly over.

AIDS hysteria and scare tactics give way to practicalities

Acquired Immunodeficiency Syndrome (AIDS) was on everybody's minds after the success of the "grim reaper" television advertisements.

In November 1988 cabinet approved a policy discussion paper that dealt with "sensitive issues' likely to generate widespread discussion and some controversy in extending the campaign.

AIDS ? then known to have infected more than 1000 people in Australia, with between 15,000 and 25,000 possibly infected with the HIV virus ? was, the paper stated, no longer "just a public health issue": it touched matters of social security, insurance, public housing, legal discrimination and job security.

Hysteria around HIV/AIDS had reached its peak in Australia after the tragic deaths of four Queensland babies from contaminated blood transfusions in 1984.

Cabinet considered responses from departments ranging from the compulsory testing of all immigrants, restrictions on the movement and employment of AIDS sufferers, to the repeal of laws regulating or penalising homosexuality, prostitution and the possession certain quantities of illegal drugs.

The response from the Prime Minister's Department was that a less "equivocal" stance be taken on these issues.

Not wishing to sit on the same fence, the minister for community services and health, Neal Blewett, said the community needed clear guidance on policy if its confidence was to be maintained, behaviours changed, and an inclusive public support for the measures preserved.

Blewitt gained cabinet support to establish a trust fund of $13 million for people who acquired AIDS as a result of medical treatment.

But  departments worried over the precedent that would be established: the government could scarcely be held negligent in such cases, they argued, and Australia's welfare system was strong enough to deal with such needs without galvanising "public sympathy".