Go up to the attic of the house by climbing up the chimney and then into the window on the left. There is a bucket of red paint.
Go back outside near the chron o John and there is a tree to the left with orange fruit. Paint the fruit red and then go back inside to talk to George.
Say to him that he has lost it and can't cut trees anymore at which point he will go out and cut it down allowing you to progress.