Cabinet also had before it a proposal to reduce the school-bus subsidy, which was slanted towards non-government schools.

The proposal would have shaved $1 million off the $5.3 million subsidy paid to ACTION in 1985-86.

''Both sub-options would meet with strong and active opposition from unions and the public, industrial action could be expected,'' ministers were told.

At that time, the ACT was directly administered by the federal government, forcing ministers to be involved in the minutiae of day-to-day operations.

A submission reminded ministers that neighbourhood-based education, with a primary school for each suburb, has long been a feature in the ACT but was costly in comparison with standards ruling in the states.

Watson High School was the only secondary school with fewer than 350 students, although seven government primary schools had enrolments of fewer than 200.

''By amalgamations of nearby schools it would be possible to close up to three primary schools,'' the submission said.

''It would also be possible to close Watson High School by arranging for its students to attend Lyneham High or Campbell High.

''Savings might be reduced somewhat by bussing children free or at reduced rates to their adopted schools. This action would go some distance towards meeting any community opposition to the closures/amalgamations.''

The closure of Watson High had been the subject of intense public debate in 1983 and 1984.

''A significant factor in the debate was the perception by some that Watson High School was being sacrificed by the government/ACT Schools Authority in favour of the new non-government Radford College nearby,'' the submission said.

''The ACTSA initially recommended closure of the school but this advice was not accepted by the government.

''Some studies suggest that in some circumstances large classes have educational advantages over smaller classes.''

Having fewer ancillary staff in schools would save $2.9 million a year, ministers were told.

The ACT staff-teacher ratio was 30 per cent higher than in NSW and 40 better than in Victoria and about 30 per cent better than the Australian average.

''Severe industrial action could be anticipated,'' the Finance Department replied, when consulted about the cost-cutting plan.

The Education Department said each of the savings options proposed would lead to strong reactions in the ACT community and would exacerbate the existing industrial action.

''A lesser reduction in the school-bus service than that now being proposed generated considerable public reaction late last year,'' it said. ''A similar reaction could be expected to this proposal, particularly from the non-government schools which are the major consumers of this service.''

The Territories Department disputed that the proposed reduction in the school-bus subsidy would save $1 million.

''The number of students needed to catch a bus will not change, this will increase the children travelling on already crowded peak-hour route services and will result in additional peak-hour services being required,'' it said.

If ACTION did not get extra funding for more buses, student fares have to rise by 50 per cent, the department warned.

Ministers were told the school buses went to most non-government schools and to some government schools. The subsidy could be seen as costly and biased in favour of some schools.

Cabinet merely noted the submission. Watson High School was later closed and the site in Phillip Avenue now houses a technology park.