Editorial: Equity fund idea worth taking up

Opinion

Three big ideas emerged from the Prime Minister's Job Summit in late February. The one that captured the least attention was also the most interesting. This involved the banking industry and the Government establishing a joint $2 billion equity fund to help companies that were temporarily struggling but fundamentally sound. It appealed as a lifeline of last resort for businesses battling extraordinary circumstances. Abruptly, and far too quickly, the idea has been abandoned.

The Prime Minister attributed this to the banks not wanting to take part in the scheme. But it appears Treasury officials were the ones to get cold feet because of the risk that it would overextend the banks at a time when the stability of the sector was crucial. That smacks of the Treasury settling for an easy option. Whatever the risk it paints, the greater threat is of a deepening recession, which the OECD predicted last week would see unemployment rising from a current 4.6 per cent to almost 8 per cent.

One of the catalysts for job losses will be firms' difficulty in raising finance to carry them and their staff through the difficult times. Normally, that succour would be supplied routinely by banks. In a strong pointer to how difficult this has become, the industry sought the partnership of Government in a joint equity fund. The initiative was commendable. Details, such as ensuring the fund would be truly a final port of call, needed to be worked out, but these were not insurmountable.

The idea was a good one and remains so. At a time of global financial stresses, it should not be extinguished solely because of concerns pertaining to the relatively Byzantine world of capital ratios. These, also, should not be insurmountable. The Treasury should be told that, given the circumstances, it should not have run up the white flag so readily, and that it should take another look at how the fund can be enacted.

The scheme's collapse has given the Labour Party ammunition to suggest the Government's rhetoric on protecting jobs is not being matched by action. It can point to a diluting of the two other major ideas to come from the Job Summit, a national cycleway and the nine-day fortnight. The job-creating cycleway, originally envisaged by John Key as a $50 million concrete path from Cape Reinga to Bluff, has been scaled back to a network of smaller-scale tracks that could eventually be linked. The job-saving nine-day fortnight has attracted only three companies.

But there is good reason for the sluggish development of these two schemes. In both instances, escalating job losses, real and potential, will greatly increase their relevance. The cycleway is essentially a public works project designed to provide jobs in regions where unemployment is high and where there is little hope of normal work becoming available. A network of extraordinary rides, starting with an already proposed route from Lake Wakatipu to Bluff, fulfils that criterion better than Mr Key's original ambition.

Likewise, there is no cause for alarm over the measured response to the scheme that sees the Government subsidise lost wages for employees who agree to reduce their hours of work to a nine-day fortnight. It is available for only six months. Companies must, therefore, consider when best to use it. For most, that time has yet to arrive. Perhaps the most salient statistic is that a further 60 firms have asked how they could use the scheme. There will doubtless be further inquiries later this week when it is extended to companies with fewer than 100 employees.

If unemployment rises at a much swifter rate, the nine-day fortnight and the cycleway could be valuable parts of the Government armoury. But an equity fund that helps banks provide the lifeblood of finance to struggling businesses could be even more important. It should not be cast aside so hastily.