Who do you really work for? Your voters or the shadowy overlords at the credit rating agencies? John Key’s dilemma is familiar to anyone trying to run a small economy with big external liabilities. On Thursday, New Zealand’s prime minister, handing down his first budget since his election on a tax-cutting platform in November, made clear where his loyalties lie. Gone are promises to cut income taxes over the next two years; gone, for the foreseeable future, are automatic payments to the national pension fund – set up eight years ago to manage budget surpluses that no longer exist, having been replaced by a record NZ$7.7bn ($4.8bn) deficit. Local commentators have frothed, predictably. But the reactions that really mattered were those of Standard & Poor’s, which rescinded the negative outlook it imposed in January; and Moody’s, which kept faith with its triple A rating.

Phew. Such measures, along with a host of other spending cuts, are unpleasant but essential at a time of falling revenues. New Zealand’s recession began earlier than most – in the first quarter of last year – and may end later. A 50 basis point rise in the government’s cost of capital, meanwhile, could add another NZ$1bn to the cost of servicing gross external debts, which at NZ$248bn are near 113 per cent of gross domestic product.