In comments provided to federal cabinet in March 1999, Treasury said a submission from the Department of Foreign Affairs and Trade about the threat posed by the so-called Y2K problem was "overly pessimistic".

While admitting that the economic impact was difficult to predict, Treasury said it was likely to be small and doubted assessments that major trading partners including Japan and Germany were at high risk, according to cabinet papers released by the National Archives of Australia.

In a scathing assessment of the DFAT submission, Treasury urged that "future Cabinet consideration of Y2K-related issues would benefit form a more balanced assessment of the risks".

As it turned out, Y2K was a non-event and Treasury's wariness appears justified.

But at the time, such views were in the minority, as governments and businesses across the English-speaking world, led by the United States, spent billions upgrading IT systems and running awareness campaigns in an effort to to squash the "millennium bug".

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As the turn of the century approached, there were mounting fears that when clocks ticked over into the new millennium computers around the world would reset the date to "00" and shut down, crashing financial systems, triggering widespread blackouts and bringing transport networks and business and government services to a halt.

In its submission to cabinet on March 4 1999, DFAT warned that the "Y2K problem will impact internationally on a wide range of infrastructure, including banking and finance, transportation, communications, manufacturing, energy, water and sewerage, health facilities, emergency services and food supply".

It cited estimates that up to 50 per cent of governments and companies worldwide would experience "at least one mission critical system failure" and the total cost could reach $3.2 trillion.

Concerned by the potential threat and inspired by the US's lead, the Howard government spent $544 million on Y2K preparations.

It not only invested in new computers and IT systems, but established a Year 2000 National Steering Committee, set up a Commonwealth Government Response Centre, set in place evacuation and support plans for staff deployed overseas and ran national awareness campaigns targeting business and the broader community.

DFAT warned that even with these preparations, Australia still faced a significant threat from overseas.

"Even though Australia is considered to be well prepared for Y2K, exposure to international infrastructure difficulties will present significant challenges," the DFAT submission said, reporting that almost 40 per cent of the country's trade was with nations considered to be at high or extreme Y2K risk, including Japan, Germany and China.

But in its comments on the DFAT submission, Treasury was much more guarded about the extent of the Y2K threat.

It admitted to being puzzled by the decision to rate Germany and Japan as high risk, and said the investment in new technology driven by the Y2K threat could actually boost productivity.

"Unlike most economic disturbances, the timing of Y2K is known precisely, giving firms time ... to plan alternative arrangements to ensure the continuation of production until the problem is fixed," Treasury said. "The greatest immediate threat of Y2K would appear to be loss of business and consumer confidence."

Advocates of Y2K action have argued that the lack of any disruptions or breakdowns at the time or since is evidence that the huge investment of time and money in preparations paid off.

But sceptics such as University of Queensland economist John Quiggin said it was a hugely costly and wasteful policy failure.

"It seems clear that the response of English-speaking countries to the Y2K bug was based on gross overestimates of the seriousness of the problem and an excessively hasty dismissal of the 'fix on failure' solution," Professor Quiggin said in an analysis published in 2005.

He said the episode highlighted significant problems with the way governments make decisions, including a bias toward defensive policies that minimise the risk of blame and a pronounced tendency to conform with prevailing views.