Bailey was a firm ally of Premier Edmond Hogan, who supported the controversial
Premiers' Plan involving austerity measures as a response to the
Great Depression. The plan split the party federally and in most states (the
1931-32 Labor split), and when it was opposed by much of the Victorian party in 1932, Bailey stood with Hogan, declaring that he was "four square with Mr. Hogan on the Premiers' Plan" and cabling Hogan to tell him of his "unswerving loyalty". The state party retracted its endorsement of his candidacy for that year's election on 28 April, and he stood as an independent Labor candidate at the May election, but was defeated by
James Fairbairn. Immediately following the party's disastrous result, the state executive required Bailey to show cause why he should not be expelled, and carried out that penalty later in the year. Bailey applied for reinstatement at the party's January 1933 state conference, during which he pledged not to challenge an endorsed Labor candidate if rejected, but met with strong union resistance and was unsuccessful by a vote of 117–62. Fairbairn, who had defeated Bailey in 1932, resigned in 1933 to enter federal politics, and Bailey contested the resulting by-election as an independent. Bailey declared that his "great offence in the eyes of the political bosses" had been that he "placed his country before party" and had "committed the terrible crime of defying the bosses"; he denied having broken or infringed upon the Labor platform or policies. The Labor Party responded that he had "wilfully adopted a policy contrary to the decision of the ALP". Bailey had been a favourite to win the bitter by-election contest, but was defeated by
Keith McGarvie. Following the result, Bailey lashed out at Labor voters for "practically giving the seat to anti-Labor" after underperforming on Labor preferences. ==Country Party MP and minister==