THE powerful union representing forestry workers wants Kevin Rudd to legislate a job-protection package for the timber industry, warning that the global financial crisis is about to spark job losses on a scale not seen in a generation.

Michael O'Connor, the forestry division chief of the Construction Forestry Mining and Energy Union, criticised the Prime Minister for paying scant attention to the human cost of the downturn.

Mr O'Connor told The Australian that forward orders placed with timber millers were plummeting and that the Government must craft an industry plan similar to that which protects jobs and promotes growth in the car industry.

It could use mechanisms such as grants and tax breaks for new investment to protect jobs and boost value adding, allowing the local industry to see off the threat of cheaper imports, he said.

Mr O'Connor's warning came as the Australian Industry Group released a survey revealing that 40 per cent of employers expect to cut jobs because of the financial crisis.

And AIG and the Australian Chamber of Commerce and Industry used recession fears to urge Mr Rudd to ensure soon-to-be-produced industrial relations reforms allowed employers to retain enough flexibility to deal with the economic meltdown.

Mr O'Connor gained national prominence in 2004 when he and his union turned against the Mark Latham-led Labor Party over its promise to lock up large parts of the Tasmanian forests.

Labor later buried the policy, with Mr Rudd continuing the pro-job policies of the Howard government.

But  yesterday Mr O'Connor said the global turmoil had changed the employment outlook, casting such a threat over 125,000 forest industry jobs that the Government had to act.

Warning that his union was deeply alarmed, Mr O'Connor said that after talking to timber companies, he felt a recession was likely.

"It's like someone slamming on the brakes," he said. "We have suffered mill closures in five states in the last few months.

"We need to be doing a lot more to ensure that we are value-adding our resource to maximise not just the value the country is getting out of it but also to maximise employment."

He said other industries would suffer similar downturns and that Mr Rudd must provide leadership on jobs.

"A whole heap of blue gum resource is about to come on stream supported by taxpayers through managed investment schemes," he said.

"There is increasing possibility that resources will go offshore, exported in woodchips rather than being value-added here in this country."

The Australian reports the industry faced competition with imports that were unsustainably or even illegally logged while Australia was encouraging the preservation of equatorial rainforests as carbon sinks.

Mr O'Connor called for the Government to focus on facilitating the Gunns pulp mill in Tasmania's Bell Bay - which was last week placed on hold because of the downturn - as well as at least one more pulp mill on the mainland because the jobs such projects involved would "fire-proof" large parts of the economy.

While he stopped short of calling for trade barriers against timber product imports, Mr O'Connor said the economic turmoil highlighted the need to lift Australia's ability to export or to at least replace imports. "We can't continue to be in the position where we are basically importing so much material, so much goods, and not making things that people wish to buy."

Mr Rudd refused to comment yesterday.

The AIG survey suggests unemployment will rise rapidly over coming months, with staff cuts being considered by nearly 40 per cent of businesses as they grapple with the financial crisis.

The AIG surveyed its members about fallout from the crisis and found that a quarter of businesses were facing a serious disruption, while a further 36 per cent were experiencing some negative effects.

Staff cuts and cost reductions are the highest business priorities, while a quarter of firms are scrapping investment plans and lowering their production. While 38 per cent are already cutting staff, 53 per cent say employment prospects in their industry have deteriorated.