"it not being the Labor government's policy to award knighthoods at this time" There's a long story behind this, dating back to the origins of the Labor party. In 1943, the Labor Party Conference announced a ban on conferring of knighthoods, but did not apply it to the then current government.
Things were made difficult by the actions of the British government, which awarded a knighthood (GCB) to General Eisenhower for the campaign in North Africa. General MacArthur was particularly annoyed at this, and asked the government for a similar honour, in recognition of the recently completed campaign in Papua. The government agreed that for political purposes, it was essential that the war in the Pacific and the efforts of the soldiers there be considered on an equal footing with the war against Germany in the eyes of people around the world. On the other hand, it was realised that it would be unfair if the government recommended General MacArthur for a knighthood while overlooking no less important contributions of other officers. In the end, the Curtin Labor government decided to award knighthoods to Generals MacArthur, Blamey, Eichelburger, Herring, Kenney and Vasey. (Although Vasey's award was subsequently downgraded to a CB by Buckingham Palace.)
Thus, when Blamey submitted a list of recommendations for knighthoods in 1945 (for Northcott, Cannan, Berryman, Sturdee, Morshead, Savage, Stevens, Bridgeford, Ramsay, Wootten and Milford), he had a reasonable expectation that the government would consider the recommendation. Indeed, Army Minister Frank Forde did place the recommendations before Cabinet, with his support. They were turned down, not on the grounds of party policy, but on the grounds that the campaigns of 1944-45 were not worthy of such recognition.