The second half of the 1970s brought a marked deterioration compared with the previous five years in the underlying trends in Australia’s transactions with the rest of the world. The annual deficit on current account transactions averaged 2.1 per cent of nominal GDP (Gross Domestic Product) during the years between 1974/75 and 1979/80 compared with 1.1 per cent during the previous five years, and private capital inflow averaged 1.4 per cent of nominal GDP compared with 2.4 per cent in the first half of the decade. Several factors contributed to this worsening, and the worsening in turn evoked a number of new policy responses from the government. These developments will be described before a detailed account of various aspects of balance of payments trends is given.