1. The Commonwealth Government has recently undertaken a comprehensive review of the nature, extent and balance of the Australian war effort.  This has been rendered necessary by certain strains and stresses which have manifested themselves, particularly in the field of manpower. Evidence is not lacking that we have overreached ourselves in some of the commitments into which we have entered, and have not the capacity to fulfil them and at the same time meet certain other demands with which we have been confronted.
2. The outbreak of the war with Japan had a far-reaching effect on the Australian national economy. The call-up of manpower for the mobilisation of the Army and the intensification of production of munitions and other service needs caused a diversion of manpower and productive resources from non-essential or less pressing purposes. In short, Australia's capacity in the last resort to defend itself against invasion became paramount over every other consideration.
3. A further important result occurred with the arrival of the United States Forces and the return of the A.I.F. It meant more people to house, feed and supply, but pressure for the release of manpower was still being exerted on the industries primarily concerned with these new obligations. The additional forces enabled a transformation to be made in the strategy from a defensive one on the mainland to a defence of the mainland from the line of the Owen Stanley Range. This change in strategy also entailed vast demands for works for the Allied Forces in the northern part of Australia and the adjacent islands. The call-up of manpower for the Forces, which had been steadily proceeding, was extended for works purposes. It was quite clear, with the constant drawing off of manpower to the Forces, munitions and aircraft production and works, the continual authorisation of new commitments and the increased demands for other requirements such as foodstuffs, that the symptoms of inadequate supplies and an attenuated manpower position would soon manifest themselves.
However, military needs were paramount over all other considerations.
4. These consequences are now seen in the following directions:-
(i) An inability to provide for the Navy, Army and Air Force an intake sufficient to maintain the strengths that have been raised.
(ii) A shortage of manpower to provide for 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.
(iii) A shortage of manpower for the production of food for Britain, and of food and general supplies for rapidly growing Allied Forces in Pacific Areas.
(iv) The need to make good in rural and many other industries basic to the war effort the serious accumulation of arrears of maintenance which has resulted from the loss of manpower, and which threatens a further deterioration of the position in these industries.
(v) A demand by the United States Forces for works, goods, services and civil workers, which it is quite beyond our capacity to supply.
5. The Government has had before it a statement showing that, of males aged fourteen to sixty four, 26.1 per cent are in the Forces, 14.7 per cent in Munitions and War Factories, and 30.7 per cent in other essential activities. The total of these is 71.5 per cent, and, according to our last advice, the corresponding figure for the United Kingdom is 73 per cent. You will appreciate from this the extent to which we have gone in the organisation of the war effort. The comparison in regard to the use of women is not quite so favourable, owing to the limitations on the use of women imposed by the distribution of the rural population over wide distances.
6. The Government has considered whether it should sanction a further regimentation of the civilian economy in order to make available additional manpower. This would necessitate the imposition of such drastic restrictive measures as to involve in Australia a higher degree of regimentation than exists in any democratic country. In view of this, and having regard to the effect on morale and on the war effort itself, the Government has rejected this course.
PART 2-RELEASES OF MANPOWER
7. In the light of the foregoing, and particularly in view of the need for men and women of skill and experience for the purposes indicated in 4 (ii) and (iii), the Government has decided to reduce the strength of the Army and the number of men and women engaged in munitions and aircraft production. The maintenance of the services will be governed by the available intake of manpower and womanpower.
8. The decisions are as follows:-
(i) The Army is to release a net total of 20,000 men by June 1944.
This is to be in addition to routine releases on medical, age and disciplinary grounds, and to other releases for special purposes, for example, seasonal releases. During the next fifteen months, this reduction and the estimated wastage, after allowing for the intake referred to in (v), will result in a reduction of the numbers in the Army by 96,365.
(ii) The Munitions and Aircraft Production 'bloc' are to release 20,000 men by June 1944.
(iii) In the releases under (i) and (ii), priority is to be given to the immediate provision of 15,000 men for the rural industry to assist in the achievement of production targets laid down to meet the commitments for the United Kingdom, the Forces in the Pacific, and civilian needs. As compared with 1939, there are 150,000 less men on farms. This represents 30 per cent reduction in numbers, but as the replacement of active men by aged men, boys and women has been extensive, the decrease in the effective labour force is nearer 50 per cent.
(iv) Subject to reductions which may be indicated to be possible by the review of the works programme, the manpower under the Allied Works Council is to be limited to the strength existing as at 31st August 1943.
(v) The intake into the services is to be limited to 3,000 men and 2,000 women per month, subject to further review in December 1943.
The number of men is slightly in excess of the normal net natural increase of the working population and is the only source now available. The Government's advisers consider that the maintenance of the intake of women will require the introduction of compulsory recruitment. The allotment between the services is 1,500 men and women for the Army and 3,500 for the Air Force.
PART 3-SERVICE COMMITMENTS OVERSEAS-GENERAL
9. The reduction in the strength of the Army and limited intake available for the maintenance of the services necessitates consideration of the extent to which Australia can maintain her service commitments overseas, which were entered into before the occurrence of the war in the Pacific.
10. The Government considers it to be a matter of vital importance to the future of Australia and her status at the peace table in regard to the settlement in the Pacific, that her military effort should be concentrated as far as possible in the Pacific and that it should be on a scale to guarantee her an effective voice in the peace settlement.
11. The Government is also of the view that, if necessary, the extent of this effort should be maintained at the expense of commitments in other theatres.
12. The strengths of the Australian and United States Forces in the South-West Pacific Area are as follows:-
Land Forces Australian ...492,000 United States ...198,000 Air Forces Australian ...136,000 United States ...55,000 The number of Air Force squadrons is:-
Operational ..37 Transport ..6 Reserve ..5 48
Operational ..45 Transport ..14 59
13. The Government is becoming increasingly concerned lest the American demand for foodstuffs, supplies, services, works and Australian service and civilian personnel will prejudice the front line military effort of the Commonwealth. An illustration is the number of operational squadrons maintained by the United States Forces relative to their total personnel. This is largely because of the repair and maintenance work undertaken by the R.A.A.F. and Australian civil establishments.
14. The interests at stake in this paramount question are not those of Australia alone. They also include those of the British Empire in the Pacific. The Commonwealth Government considers it to be very essential that the Governments of the United Kingdom, Canada, and New Zealand in particular should understand the vital importance of the extent of the military effort that should be maintained in the Pacific by Australia alone or in association with other parts of the Empire. If the defeat of Japan is to await the end of the war in Europe, the struggle in the Pacific will be more prolonged, and it is imperative that a certain minimum effort should be maintained by or on behalf of the British Empire in the Pacific.
15. I am outlining below the critical questions which arise in regard to the maintenance of Australian service commitments overseas. The A.I.F. having returned to Australia, the remaining overseas commitments relate to the Navy and the Air Force.
PART 4-NAVAL OVERSEAS COMMITMENTS
16. In accordance with a decision taken in May 1940 , which was before the outbreak of war with Japan, more than 3,000 R.A.N.
personnel are serving overseas manning destroyers, minesweepers and employed on anti-submarine work.
17. In view of the reductions made in the Army and the restrictions imposed on the R.A.A.F., the Government has been unable to make any allocation to the Navy from the monthly intake of 5,000 men and women, though the Naval authorities require a monthly quota of 500 for the maintenance of the present strength of the R.A.N. and personnel overseas.
18. The consequence of this would be that the Navy would be limited to a strength which would be governed by its capacity to replace its wastage by the gradual return of the 3,000 personnel serving overseas and from its existing numbers in Australia.
19. The Government would be glad to have your observations on the question of returning Australian naval personnel serving overseas, in the light of the general picture of the Australian manpower situation as outlined in this cablegram.
20. In submitting this proposal, it has not been overlooked that the destroyers and minesweepers manned by R.A.N. personnel are part of the Eastern Fleet which will be used in future operations from the Indian Ocean against the Japanese. The Government also fully appreciates the importance of the future role of the Eastern Fleet and the degree of protection which the Eastern Fleet affords to the west and northwest coasts of Australia.
PART 5-AIR FORCE OVERSEAS COMMITMENTS
21. The Government has also reviewed the extent to which Australia is able to continue to participate in the Empire Air Training Scheme.
22. The Empire Air Training Scheme was originally agreed to in 1939, shortly after the outbreak of war with Germany.
23. The strategical situation changed with the extension of the war to the Pacific when the Government decided that the Commonwealth's continued participation in the scheme would be subject to the capacity to provide the manpower required. 
24. You will recall the assurance given to Mr. Menzies, during his visit to the United Kingdom in 1941, that, should war occur in the Far East, there would be a review of air resources, with a view to their redisposition to meet the situation on all fronts. 
25. The Government considers that the manpower position in Australia requires that the Commonwealth's part in the Empire Air Scheme shall be directly related to the contemplated strength of the R.A.A.F. in the South-West Pacific Area.
26. There are 20,000 R.A.A.F. personnel serving overseas. Under Article XV of the Empire Air Training Scheme Agreement, eighteen squadrons, manned by Australian personnel, are to be formed.
Sixteen exist at present, fourteen being abroad and two in Australia under the arrangement made by Dr. Evatt with yourself.
 Two more remain to be formed in the United Kingdom. Australia also provides a limited number of ground staff for squadrons overseas, and two R.A.A.F. regular squadrons (Fighter and Flying Boat) are also serving abroad.
27. As the total monthly intake for the three Australian Services is not to exceed 5,000 (of which 3,500 has been allotted to the R.A.A.F.), the Government feels that Australia could only keep up her commitment under the Empire Air Training Scheme, and at the same time expand and maintain the R.A.A.F. in the South-West Pacific Area at the strength appropriate to Australia's equitable share in operations in this theatre, by a much greater reduction in Army strength than that now contemplated. It is averse to any further Army reduction for various important reasons. The high incidence of malaria is one of them.
28. In these circumstances, the Government urges that the precedent initiated by yourself and Dr. Evatt for transferring R.A.A.F. squadrons from overseas be carried further by the transfer of additional squadrons. Such squadrons would form part of the strength of the R.A.A.F. in the South-West Pacific Area, which would be stabilised at the following figure:-
(i) the present strength in Australia, namely 37 operational squadrons, 6 transport squadrons, 5 reserve squadrons-total 48, plus (ii) the number of squadrons that can be transferred from overseas, plus (iii) the strength that can be maintained from the monthly intake of 3,500 personnel, after providing for an outflow for the Empire Air Training Scheme as indicated in paragraph 29.
29. In order to avoid disrupting the Empire Air Training Scheme, the Government is agreeable to continue the outflow of personnel, but this will be on a diminishing basis as the number of R.A.A.F.
overseas is reduced. The precise number that Australia would be able to send under the Empire Air Training Scheme under such an arrangement is now being determined, and will be communicated as soon as possible.
PART 6 -SUPPLIES AND SERVICES FOR THE UNITED STATES FORCES
30. In view of the manpower position, I am informing the Commander-in-Chief, South-West Pacific Area, of the definite limits to which commitments can be accepted for United States requirements of supplies and services, and of the alternative choices which such limits impose.  These needs of the United States Forces are estimated to involve at present the employment of some 75,000 Australian personnel, and there is evidence that the figure may rise to 100,000 by June 1944.
31. Among the alternative choices which it will be necessary for General MacArthur to consider is the provision of American personnel in lieu of Australians, both service and civil, for service maintenance requirements of the United States Forces and for major American works projects. Similarly, it will be necessary for him to consider whether food, goods and services required for United States troops at present in the South-West Pacific Area, beyond the limits of our present capacity and the requirements of additional United States Forces which may be sent to Australia, should not be provided by the United States. The demands for foodstuffs alone for 1944 from the United States Forces in the South-West Pacific Area at present total 50,500,000. In addition, we have demands amounting to 14,000,000 for deficiencies in requirements of the United States Forces in the South Pacific Area which cannot be supplied by the New Zealand Government. The cost of Reciprocal Lend-Lease for the financial year ending June 1944 is expected to reach close on 100,000,000 or something like one- sixth of our total war expenditure.
32. The outline given in this cablegram will enable you to appreciate the essential remoulding of certain aspects of our war effort. The changes do not, of course, involve any reduction in its dimensions, but a re-casting of its nature, scope and balance.
33. The difficulties with which we have been confronted have primarily arisen from the adoption of commitments, both in Australia and overseas, which have now been proved to be beyond our limited manpower resources. It is now essential from the aspect of our own policy, for us to determine the precise limits and nature of both the military and civil contribution of which we are capable, in order to enable it to be related to the wider plans of the Empire and the United Nations into which our effort is fitted. The failure to do so would only be misleading the United States and yourself in regard to the dimensions of our capacity.
34. I shall be glad to receive your observations, particularly in respect of the conclusions that I have indicated on our service commitments overseas. I do not propose to communicate our views in Part 3 to the other Dominions until I hear from you.