The only suitable weapon being built in Australia was the pre WWI vintage Vickers Mk.1 Machine Gun. Unfortunately the water cooled VMG would not fit in the standard British 2-pr manlet, (the drawings for which had been obtained from Canada) without a serious redesign that would weaken it greatly and leave the vulnerable water jacket sticking out the front. The RAF had a similar problem with MGs for their aircraft. SAF Lithgow was looking with dismay at the idea of trying to reverse engineer the BESA MG or the BSA pattern Browning from the few examples of each available, when the answer to both these problems literally fell from the sky.
To this day no one has confirmed exactly what the IJN Mitsubishi Type O reconnaissance seaplane was doing flying over the Blue Mountains west of Sydney when it crashed, or even precisely when it came down. But the picnicking family, who found the decomposed remains of two Japanese airmen huddled around a dead fire at the bottom of a blind gully in March of 1941, did Australia a great favor.
Since the end of WWI Vickers had done a great deal of development on the standard VMG Mk 1 to better suit it for aircraft use. The final variation only just lost out to the Browning in the pre-war RAF selection trials and while a few examples of different air-cooled VMG Mks were available in Australia, they were all early types. None of the final aircraft model had ever reached this country (or anywhere else we had access to). However Japan had adopted the new VMG B type pre war, and here were a pair of Type 97 machineguns dropped on the very doorstep of SAF Lithgow, fate works in mysterious ways.
Its hard to say exactly how the new VMG (Designated Mk III for AFVs and Mk IV for aircraft in Australia) differs from the old infantry pattern gun, aside from the slim air-cooled barrel jacket, without writing a whole book on the subject. Most parts were almost the same across all three, but almost isn't identical. The amount of retooling was modest but it proved impractical to make both old and new guns on the same line. While the newer parts were designed to function at higher speeds (up to 1,000rpm in aircraft), it didnt stop them working just fine at the normal 450-500 rpm demanded by the Army, so production of all Vickers types was shifted over to the new type.
The irony of course being the need to design a water jacket for the new gun and so the VMG (Aust) Mk V completed the circle being introduced as the new land pattern gun in mid 41. Some people claimed the new pattern was a waste of time and effort, and as far as the Mk V goes they might well be right, overall wartime MG production would undoubtedly have been higher with out the changes. But with the stockpiles of old Vickers left over from WWI, water-cooled medium machine guns were one item Australia had in relative plenty. The thing most critics seem to ignore is the fact that between the fall of Britain and the introduction of the new models, the Vickers line at Lithgow made less than 500 (463) of the old type infantry pattern guns, the demand simply did not warrant more. Mk V production only really took off 1943 anyway, to meet demand from the Russian theater.