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  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.