War Cabinet has recently completed one of its periodical reviews of the Australian war effort. As the commitments which we have accepted still exceed our manpower resources, we have not yet been able to attain that degree of balance which, as I mentioned in London, it is our aim to establish.
2. Two important considerations have retarded the easing of the position. In the case of the Army, the Operations Instructions issued by General MacArthur for occupancy of Australian and British Islands by the Australian Forces have entailed an additional overseas commitment of approximately 10,000 personnel, and have not permitted the disbandment of many units previously contemplated. In regard to the Civil Economy, War Cabinet has approved of programmes for the Royal Navy totalling 26,186,100.
In view of my offer of the fullest co-operation in basing the British Fleet in the Pacific, this was an obligation we were glad to undertake.
3. The request that the Australian Forces should assume the responsibility for the continued neutralisation of the Japanese in Australian and British territory and Mandates was made to me by General MacArthur on my return from abroad. This enabled him to withdraw the whole of the American Forces from these islands for his offensive campaign against the Philippines. General MacArthur also asked that two A.I.F. Divisions be made available for use in his plans for offensive action in the South West Pacific Area, and this was agreed to. These divisions are now being staged in forward areas.
4. Our land forces have not been very active in the last six months, though their role has been in accordance with the plans of General MacArthur. Seventeen squadrons of the R.A.A.F. are operating outside Australia in the South West Pacific Area and 11 R.A.A.F. squadrons are based on Darwin for operations in the North Western area. The remaining strength of 21 squadrons is disposed throughout the remainder of Australia on coastal patrols and other duties. The R.A.N. has been participating actively in General MacArthur's advance on the Philippines, and H.M.A.S. AUSTRALIA has been twice severely damaged by suicide bombers. It is estimated that she will take several months to repair. You will recall that we previously lost the CANBERRA, which you so graciously replaced with the SHROPSHIRE, as well as the SYDNEY and PERTH, in addition to smaller ships. The HOBART, which was torpedoed, has just returned to sea after several months in dock.
5. In making its review, War Cabinet had before it your letter of 27th May  and the First Sea Lord's memorandum of 26th May , in which you refer to the Admiralty being most willing to turn over to Australia an aircraft carrier and one or more cruisers. A decision on this matter had been deferred after my return until the possibility of manning these ships could be more accurately determined at a later review.
6. War Cabinet has now decided that an increase in Australian naval strength is one of the most effective ways in which we can maintain a satisfactory fighting effort in the advance against Japan.  In considering the manpower allocations for the Services, it is willing to double the naval intake and provide a monthly quota of 600 men and 100 women for the six months ending June 1945, when the next periodical manpower review will be held.
7. In these circumstances, the Government would be pleased to know whether your Government would be prepared to transfer to the R.A.N., without payment, one or two cruisers of the TIGER class and a light fleet carrier of the COLOSSUS class as mentioned in the First Sea Lord's memorandum.
8. The Government view this not only as a means of strengthening the R.A.N. Squadron for future operations in this war, but also, as mentioned by the First Sea Lord, as a way of providing a foundation of modern ships on which to build up Australia's post- war fleet. It will no doubt be the aim of the Governments concerned to revive the scheme of Empire naval defence in the Eastern hemisphere, of which the Royal Australian Navy was established as a component part.
9. Although the manning of these ships would impose very considerable strain upon our already depleted manpower resources, we would be prepared to face this, both as a means of contributing to the general manpower problem of providing the necessary naval forces for the defeat of Japan and at the same time securing the future of the Royal Australian Navy. You will also be aware that we have 3,000 Australian naval personnel manning ships of the Royal Navy and that the Australian Government has not pressed its original request in my letter of 17th May, 1944, for their return to the Royal Australian Navy, in order to case the general manpower position.
10. The details of taking over and dates for manning any ships which the British Government would be prepared to transfer to the Royal Australian Navy could be left for arrangement between the Admiralty and Australian Commonwealth Naval Board.