The word, chaff, has various meanings. One is rubbish or worthless material and another is strips of metal foil dropped by aircraft to interfere with radar detection.
Many believe Mackinlay meant the former...ie Kelly was trash...but he almost certainly meant the latter...ie that he was a sort of smokescreen, as it were. In other words, it was not at all offensive.
The incident reminded me of one that happened in the USA, when an official was hounded for using the word *********, which just means mean or stingy and has nothing whatsoever to do with anyone's colour.