PART I-EARLIER AGREEMENT TO REDUCTION OF ARMY STRENGTH
When the Prime Minister was abroad last year, he discussed the
Australian War Effort with Mr. Churchill and the United Kingdom
Chiefs of Staff and President Roosevelt and the Combined Chiefs of
Staff.

2. The purpose was to explain the disequilibrium that had
developed in the war effort, and to ensure there would be no
misunderstanding of the measures necessary to restore a state of
balance. The causes of the disequilibrium, were stated to be
(i) The extensive call up of manpower for the Forces and diversion
to war industries following the outbreak of war with Japan.

(ii) The large commitments assumed in respect of supplies and
services for the Allied Forces.

(iii) The desire to maintain the volume of food exports to the
people of the United Kingdom.

3. It was emphasised that, while it was the desire of the
Government that the Australian war effort should be maintained on
a scale which, with the Commonwealth's earlier record in the war,
would guarantee her an effective voice in the peace settlement, it
was essential to ensure a proper balance between the direct
military programme and its industrial basis.

4. It was pointed out that this could only be achieved by the
special release of 50,000 men from the Army. Agreement was
obtained to this step, which was to be achieved by the reduction
of the Army to six divisions and two armoured brigades.

5. On the return of the Prime Minister to Australia, he discussed
the situation with the Commander-in-Chief, Southwest Pacific Area.

It was agreed that two divisions should be assigned to General
MacArthur for his Philippines campaign, and he later requested
that the Australian Forces should assume the responsibility for
the neutralisation of the Japanese in Australian and British
territory and mandates in the Eastern portion of the Southwest
Pacific Area, and relieve the United States Forces in those areas.

The present strength of the Australian Forces disposed in New
Guinea, New Britain and the Solomon Islands is four divisions less
one brigade, in addition to miscellaneous units. These are in
addition to the two divisions assigned to General MacArthur for
his forward offensive. The only operational field force assigned
to the mainland is a brigade at Darwin.

6. In view of these commitments, it was decided that a reduction
of 30,000 only should be made in the strength of the Army by June
1945. It was not considered prudent to go beyond this number, for
the following reasons-
(i) The possibility of a severe campaign in the Philippines, in
which two of our divisions were to participate.

(ii) The task assigned to our forces in New Guinea, New Britain
and the Solomon Islands which, with the two divisions provided for
the assault forces, raised our operational strength in the field
to a higher figure than that attained either in the last war or in
this one.

(iii) The possibility that the war in Europe might not end as
early as anticipated, and the likelihood that the release of
Forces for the Pacific might therefore be delayed.

PART 2-PRESENT OPERATIONAL COMMITMENTS
7. In regard to 6 (i), it was not necessary for General MacArthur
to call upon the two divisions as planned by him, owing to the
success of his campaign. This resulted in a prolonged period of
inactivity which evoked criticism both from the forces and from
the Australian people that neither were these divisions fighting
nor were the acute manpower shortages being rectified by releases
from the Forces on an adequate scale. The two divisions are now
being used for operations in Borneo. The Government fully abides
by its commitment to General MacArthur in the assignment of these
forces, as he has based his plans for the Borneo campaign on their
use. It is also understood that these plans were approved by the
Combined Chiefs of Staff. Nevertheless, as these two divisions are
a large component of the total strength of the Australian Army,
the Government views with some anxiety the possibility that their
use in Borneo may result in a prolonged commitment which, from the
over-all aspect, might prejudice the urgent reduction of the
strength of the Army. This aspect is being discussed with General
MacArthur.

8. In regard to 6 (ii), the operations of the Australian Forces in
New Guinea, New Britain and the Solomon Islands, in accordance
with the task assigned to them by General MacArthur as mentioned
in paragraph 5, seek the realisation of the following objectives:-

(a) Destroying the enemy where this can be done with relatively
light casualties, so as to free our territory and liberate the
native population, and thereby progressively reduce our
commitments and free personnel from the Army.

(b) Where conditions are not favourable for the destruction of the
enemy, to contain him in a restricted area by the use of a much
smaller force, thus following the principle of economy of force.

The Commander-in-Chief of the Australian Military Forces
anticipates that the progress of operations in New Guinea and the
Solomon islands will enable reductions to be made to the following
strengths by the end of the year in addition to miscellaneous
units:-

New Guinea-One infantry brigade group.

Solomons-One infantry brigade group.

In New Britain, where the reduction of Rabaul would require the
use of major forces, it is proposed to continue the present
economic policy of containing the enemy, but to review this policy
when circumstances permit. To contain the large enemy force in the
Gazelle Peninsula, one division of two infantry brigades will be
required, together with a reserve of one infantry brigade.

PART 3-GENERAL EFFECT OF THE END OF THE WAR IN EUROPE
9. The victory in Europe now enables the United Nations to
concentrate their strength in the Pacific to defeat Japan as
quickly as possible, but it is important that Australia should
continue to play a notable and worthy part until final victory is
achieved.

10. In considering the nature and extent of the future Australian
war effort, there are two governing considerations:-

(i) The plans of the Combined Chiefs of Staff and the Forces to be
provided by Australia for the part assigned to them.

(ii) The manpower resources of the Commonwealth and their
allocation between the Services, and the needs of the civil
economy, including the indirect war effort.

11. The manpower resources are spread over the following
commitments:-

(i) To maintain the Australian Forces at a strength which will
provide for the organisation approved from time to time.

(ii) To maintain the material needs of the Australian Forces.

(iii) Having regard to the extent of commitments and the
limitations of manpower and material resources:-

(a) To assist in the provision of the material needs of the
British Pacific Fleet which is based on Australia.

(b) In accordance with the terms of the Reciprocal Lend Lease
Agreement to assist in the provision of the material needs of the
United States Forces.

(c) To assist, if possible, in the provision of the material needs
of other Allied Forces which may be based on Australia.

(iv) To provide for the essential needs of the civilian population
on standards appropriate to the present stage of the war, and the
civilian standards of the countries whose forces will be supplied
from Australian sources. This includes the provision of increased
manpower and materials for housing.

(v) To provide for the maintenance of food exports to the United
Kingdom and India at the level agreed upon.

(vi) To provide for the production of such goods as may otherwise
be approved for export including supplies for U.N.R.R.A.

12. There will be a considerable demobilisation of forces in the
United Kingdom, United States and Canada, and New Zealand has
already made certain reductions. Australia's war record entitles
her to carry out an adjustment in the manpower position which,
while providing for a military effort in the war against Japan
which is equitable in comparison with those of other Allied
countries, also enables the acute stringencies to be removed and
places the civil economy on a comparable satisfactory footing to
those of other countries for transition to the post-war period.

13. In its last report, the War Commitments Committee stated that
there would be a gap of 45,000 in male labour requirements of
essential civil industry in the first half of 1945. It has now
been decided [1] to release at least 50,000 men from the Army and
Air Force by the end of 1945. This is in addition to the releases
of 20,000 decided upon in October 1943, and the 45,000 decided
upon in August 1944. Basic considerations are the 20,000 men from
the Army to complete the agreed reduction of 50,000 referred to in
paragraph 4 and the anticipated repatriation from overseas within
six months, of 17,000 members of the R.A.A.F. and 6,500 prisoners
of war. The allocation of the reduction between the Services and
the future strength of each has yet to be determined, but the
tentative objectives of the strengths of the Forces which are
being considered for the remainder of the war are:-

(i) Navy: Maintenance at its present strength.

(ii) Army: Reduction of operational forces to a total of three
divisions.

(iii) Air Force: Corresponding proportionate reduction to that to
be made in the Army. This cannot be definitely determined at
present until the immediate reduction of 50,000 for the Army and
Air Force is apportioned and the effect of the return of personnel
from overseas is worked out.

14. At the Anglo-American discussions at Malta and Yalta, it was
decided that planning for the war against Japan should be on the
basis of an eighteen months' war after the defeat of Germany. Now
that the war in Europe has ended, it is desired to know whether
more definite advice can be given by the Combined Chiefs of Staff
as to the period which should be adopted as a basis of planning.

In view of our limited resources, the extent of our commitments,
and the additional demands being made upon us, some definite
advice in this direction would be an invaluable aid, particularly
if the prospects are that this period can reasonably be reduced.

PART 4-THE COMMAND SET-UP AND ASSIGNMENT OF AUSTRALIAN FORCES
15. The directive for the Southwest Pacific Area which was
approved by the Governments of the United Kingdom, U.S.A.,
Australia, New Zealand and the Netherlands, is nearing fulfilment.

16. If any change is made in the boundaries of the present command
set-up in the Southwest Pacific Area, the Government considers
that operational control of the Australian Forces on the mainland
of the Commonwealth and in Papua and Australian Mandated Areas
should revert to the Australian Service Authorities. These
authorities would also control any Allied Forces assigned to these
areas as might be necessary for special operations such as the
ultimate liquidation of the Japanese in New Britain. It would also
be essential to allot sufficient shipping, landing craft and
equipment for the operations to be completed in these areas.

17. For operations outside the areas of Australian control, the
Government would assign the R.A.N. Squadron under its own
Commander and Expeditionary Force components of the land and air
forces which would operate under Australian Commanders in a
similar manner to that of the A.I.F. in the Middle East.

18. In regard to the assignment of the Australian Forces, the
following are reasons in support of continuing to be associated
with the forward movement against Japan under General MacArthur:-

(i) Australia received considerable aid from the United States
when this country was in grave danger of attack. It would probably
be the desire of the Australian people that their forces should
fight alongside the Americans to the end of the war as a
cooperative expression of their gratitude. The American people
would no doubt appreciate the spirit prompting such a desire, and
it should do much to strengthen future Australian-American
relations which are of paramount importance from the aspect of
security in the post-war period.

(ii) The Australian Forces have fought with the Americans since
1942 and formed bonds of comradeship. The Commander-in-Chief of
the Australian Military Forces has stated that it is the popular
desire of the land forces to be associated with the forward
offensive.

(iii) There have been criticisms that the liquidation of by-passed
Japanese Forces is not by itself a worthy effort for our Forces.

With the American progress towards Japan, the operations against
Borneo, the Netherlands East Indies and Malaya have assumed the
nature of localized campaigns which have little immediate or
direct influence on the final defeat of Japan. From the aspect of
prestige and participation in the Pacific peace settlement and
control machinery, it is of great importance to Australia to be
associated with the drive to defeat Japan.

19. On the other hand, for reasons of British and Australian
prestige and co-operation, it would be desirable to have a token
force assigned to the South East Asia Area for association with
the forces allotted for the re-capture of Singapore, if that is
possible. A further avenue of Empire co-operation would be the
assignment of the R.A.N. Squadron to the Commander-in-Chief,
British Pacific Fleet, if the opportunity offers in any re-
allocation of Forces. It has also been proposed that three
R.A.A.F. Squadrons from overseas be provided as a contribution to
the very long range R.A.F. Task Force in the Pacific.

20. In regard to the use of our Forces to consolidate our
relations with foreign neighbours, we helped France early in the
war to hold New Caledonia. We also aided the Dutch in Timor and
Ambon and the Portuguese in Timor. As already mentioned, two of
our divisions are assigned to operations in Dutch and British
Borneo.

21. If you are both in general agreement with the conclusions of
War Cabinet and the Advisory War Council as indicated in this
cablegram, it is important that you should convey the foregoing
information to the United States Government, the Joint Chiefs of
Staff and the Combined Chiefs of Staff, and seek agreement with
the views expressed in any change in the set-up that is
contemplated and in the part to be assigned to the Australian
Forces. Any special views of either of you should be cabled at
once for consideration.

22. General MacArthur reports that the matter is under
consideration in Washington and London, and this cablegram is
being repeated to Bruce. It is also being repeated to the New
Zealand Government and you might acquaint Fraser with our views.