During 1976, the state leader of the Liberal Party,
Max Bingham, convinced Gray to stand as a candidate in the
state election for that year. Gray ended up out-polling three sitting Liberal members in
Wilmot. Despite Reece's
ALP background, Gray praised Reece as "the greatest living Tasmanian." In 1983, the newly elected federal Labor government led by
Bob Hawke intervened to prevent the building of the dam. However it was finally a
High Court of Australia decision (
Commonwealth v Tasmania)—despite the persistent clamour for states' rights in which even
Joh Bjelke-Petersen was utilised—which stopped the dam's construction. Tasmania was the recipient of $276 million in grants by way of compensation. Gray was elected to a second term in
1986. This marked the first time in 58 years that a non-Labor government had managed to win a second term in Tasmania. In 1989, Gray became the centre of the debate over gay rights in Tasmania. Gray stated that homosexuals were not welcome in Tasmania. But after seven years in power, Gray's Liberals suffered a two-seat swing at the
1989 election, which left them one seat short of a majority, although they were still the largest single group in parliament. The ALP formed an
accord with the
Greens, whose unprecedented five seats gave them the balance of power. Gray refused to resign and asked the
Governor,
Sir Phillip Bennett, to call fresh elections. Bennett refused to accept his advice, believing that Gray had lost the support of the House and was no longer in a position to ask for a dissolution. Gray resigned after the House amended the Address-In-Reply to include a statement of no confidence in him or his government and confidence in ALP leader
Michael Field. Field then became the new Premier. A
Royal Commission later found that
Edmund Rouse, a prominent
Launceston businessman and chairman of the forestry company
Gunns Limited, had tried to bribe a Labor backbencher to cross the floor and keep Gray in power. Gray denied any knowledge of this but an ALP appointed Royal Commission criticised his conduct (having an unexplained $10,000 in the freezer was a problem), but found no legal case to answer. He resigned as Liberal leader on 17 December 1991. Post the Royal Commission conclusion, in 1992 Gray won one of the highest personal votes ever recorded at the next State election. ==Life after politics==