THE AUSTRALIAN WAR EFFORT
1. The purpose of this memorandum is to state the broad position confronting the Commonwealth Government in regard to the nature and extent of the Australian war effort. This effort is, of course, primarily based on the strategical plan in the South West Pacific area which is a part of the general scheme for the defeat of Japan.
2. Australia, in addition to maintaining Forces of considerable strength in the South West Pacific area, as well as continuing its part in the Empire Air scheme and manning certain ships for the Royal Navy, has accepted responsibilities for the provision of works, supplies and services for the American Forces as well as its own. It has also to maintain the civil economy on certain austerity standards, and to meet commitments for the supply of foodstuffs to the United Kingdom to assist in the maintenance of the rations of the British people.
3. The following was the distribution of Australian manpower in December, 1943:
Per cent Navy, Army and Air Force 26 Munitions industries 14.7 Other essential industries 30.7 Total for direct war activities 71.4 Less essential industries 21.7 Other 6.9 100.0
An indication of the degree to which the national effort has been concentrated on direct war activities is to be obtained from a comparison between the figures for the United Kingdom and Australia. in the case of the United Kingdom 75.1 per cent of its manpower is absorbed in direct war activities; the figure for Australia is 71.4 per cent.
4. As Australia does not possess the manpower and material resources to meet all the demands being made upon it, I discussed our problem with the Commander-in-Chief, South West Pacific area in December, 1943. General MacArthur fully agreed with the action contemplated by the Government to provide for the following needs:-
(a) The additional manpower necessary to sustain the level of activity in a number of basic industries on which the Australian direct military effort ultimately depends (transport, power, timber, minerals, food, clothing, etc.), in order to ensure a proper balance between the direct military programme and its industrial basis.
(b) Certain further requirements of manpower for the production of food for Britain, and of food and general supplies for the rapidly growing Allied Forces in Pacific Areas.
5. While in London I discussed with Mr. Churchill the question of the additional demands likely to be made on Australia when British Forces are brought into the war against Japan.  I agreed to a proposal by Mr. Churchill that British Staff Officers should be integrated into the Australian Staffs for the preparation of a report on the potentialities of Australia as a base. Mr. Churchill emphasised that this study will be made without any commitment on the part of the United Kingdom Government that the forces will be based on Australia, the latter aspect being reserved for later decision in the light of the military position when the forces become available.
6. Nevertheless, it is essential that the Commonwealth Government should have before it some broad ideas to govern its policy in regard to the Australian war effort. Australia can only maintain additional forces by adjusting her war effort in some other direction. The Government will be quite prepared to do this provided the Australian military effort is not permitted to fall below a certain point. Furthermore it is presumed that if strategical considerations indicate that additional forces should be sent to Australia, the resources of the United Nations will be capable of making good deficiencies which cannot be supplied by the Commonwealth.
7. Though a decision on the basing of British Forces on Australia is not possible at present, I pointed out to Mr. Churchill that the Australian Government would like a general view on the desirability of Australia proceeding with the measures necessary for supply and maintenance, in view of the fact that the resources can be absorbed in other directions in the war effort of the United Nations. A precise assessment of what Australia is capable of doing can then be worked out. The decision as to the nature and extent of its war effort is of course a matter for the Australian Government.
8. The following conclusions were reached by Mr. Churchill and myself:
(i) The Australian war effort should be on the following basis:-
(a) the maintenance of six divisions for active operations.
(b) the maintenance of the Royal Australian Navy at its present strength plus additions arising from the Australian naval construction programme.
(c) the maintenance of the Royal Australian Air Force at the strength of 53 squadrons to be achieved under the present programme by December, 1944. This excludes:
3 R.A.F. squadrons in Australia 2 N.E.I. squadrons in Australia 2 Permanent R.A.A.F. squadrons serving overseas.
R.A.A.F. E.A.T.S. squadrons and personnel serving overseas.
(d) food for Great Britain (including India) to be exported on the 1944 scale.
(ii) In the light of the strengths laid down for the Forces, the Commonwealth Government will review the extent and nature of other aspects of the Australian war effort. This will enable it to assess what can be done for the supply and maintenance of British Forces which may be based on Australia, in addition to the present similar commitments for the United States Forces. As demands will exist somewhere for supplies that could be produced, it may be feasible to go ahead with increased production. For example, if increases in food production should not be required for United Kingdom Forces, they could be sent to the United Kingdom or the ceilings at present imposed on the United States Forces could be raised to some degree.
Mr. Churchill emphasised that agreement to this action does not imply any commitment or the adoption of any specific plan for the basing of British Forces on Australia.
9. As Australia is in a sphere of American strategic responsibility, Mr. Churchill agreed that I should discuss the matter in Washington.