John Key

Wellington, Feb 23 NZPA - Prime Minister John Key doubts unemployment will reach the dire highs predicted in an economic think-tank report.

The New Zealand Institute yesterday warned of New Zealand's vulnerability to the global recession, saying unemployment could reach about 11 percent in the next two years.

The institute's report followed last week's gloomy crown accounts, a government warning to the state sector it won't be getting more money for pay rises and comments by Finance Minister Bill English that restraint will be paramount in his first budget in May. The Government is holding a jobs' summit at the end of the week as part of a suite of measures to help New Zealand through the international financial crisis.

Speaking on TV One's Breakfast programme Mr Key disagreed that unemployment would be as bad as the institute predicted.

"There's no shortage of doomsayers out there. I don't think so personally -- that's a hell of an increase in unemployment."

Internationally the situation was worsening and contractions in other countries would hurt New Zealand, he said.

"We're in a very dynamic position and we are in pretty much unchartered territories. There will be a point actually where these things start to turn around."

Mr Key also said the job summit had already produced good ideas to tackle unemployment.

One suggestion was a four-day week, which Mr Key said had merit but would not work for every industry.

"Not everyone is going to want to work on a four-day week. It may be that it's unaffordable. It might be nine working days and the tenth one is a training day," he said.

"It's an idea that has got some merit because it helps cut costs for employers so therefore they keep employees in work. It's the workforce banding together to help each other out so they all keep their job and you upskill the workforce through training."

Previously Mr English was cautious about the idea if it required government money to subsidise the lost day.

"The Government's books aren't in good shape. There won't be room to spend large amounts of money," he said.

The New Zealand Institute report recommended support for strategic New Zealand businesses, should they face funding difficulties that threaten their viability or make them vulnerable to foreign takeovers.

It also suggested creating a New Zealand growth fund that would leverage State-owned enterprise assets and invest in other companies.

It said New Zealand was particularly vulnerable to impacts through the credit channel on business activity and investment.

The credit channel is the mechanism through which capital flows into New Zealand, either by foreign investors buying direct equity stakes in New Zealand companies or in the forms of loans to financial institutions, companies and the Government.

"With foreign investors moving against New Zealand, these vulnerabilities create a risk of a sudden outflow of foreign capital that would have a disastrous effect on investment and economic activity, as well as hurting New Zealand's long term growth prospects."

Mr Key earlier this month made comments that iconic Kiwi company Fisher & Paykel should not be allowed to fail.

Today he said the company had not asked for help and he preferred commercial solutions to commercial problems but added in extraordinary times Government help may be needed.

"If it meant the failure of the company or an offshore cornerstone shareholder coming in I wouldn't be opposed to changing the rules to ensure the company survives."

Meanwhile, in the New Zealand Herald today Mr English said by the time of the budget the country would be facing "quite substantial deficits".

The effect of the recession on trading partners would be larger than any short term savings that could be made.

He was trying to get departments to change the way they think and accept they would have to do more with the same or less funding.

However there would be no change to promised tax cuts.

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