By Political Editor Duncan Garner

Peppered with questions over the lingering and embarrassing tea-tape saga yesterday, John Key replied: "I've got bigger things to worry about."

And he certainly has.

Less than a year ago, an upbeat Finance Minister Bill English - heading into his 2011 Budget - was promising economic growth of near 4 percent and 170,000 jobs over four years. But how things change.

None of that optimism was present yesterday in Key's State of the Nation speech. 

He mentioned the word "jobs" just once - yes just once - and it went like this:

"A brighter future is where New Zealanders from all backgrounds and all walks of life have the opportunity to better themselves and go forward in their lives; where people have the jobs."  

It's a paragraph of meaningless slogans really.

So times have changed once again. The meltdown in Europe is being blamed and it's proof the NZ economy is not immune from the international collapse - and now the Government is moving the goalposts again.

It's clear we now face a gradual and moderate recovery - at best. Gone are the words Key used two years ago about an "aggressive recovery". 

That was pie in the sky optimism based on hope, a sunny nature and with his fingers crossed behind his back. It hasn't panned out the way the PM was hoping. In short; he was wrong.

So what to make of the Government's first priority as outlined yesterday by Key - a surplus by 2014/15. Well, it may or may not happen - that's about as positive as anyone in Government can be.

An initial forecast of a $1.5 billion surplus has been revised down to $300-500 million. In financial speak, that is so, so small that it's now anyone's guess as to whether there will be a surplus at all. Indeed this is the first stage of the softening up process. It's the Government warning Kiwis that it's major pledge to balance the books looks like it's going quickly out the window.

Key blames the meltdown in Europe for the revised numbers. And certainly all Key can go on are Treasury forecasts. Forecasting is not an exact science - I can't recall the last time Treasury actually got it right. But each time Key and English talk up the economy on the back of a Treasury forecast, they are forced to back-pedal within months.

That's because the world is moving and not in a good way. The global economy is sluggish at best. In Europe a full-blown recession is entirely possible and imminent.

Key sees some bright lights in America, but it's hardly boom times ahead, and with Europe tanking, Asia's growth numbers are under threat - which spells more long term trouble for us.

Our two biggest markets, Australia and China are under new pressures - and if we don't export as much to them, our economy suffers and stutters - hence why all the numbers here are being revised downwards.

So where does this all leave the Government?

Key has finally dropped the optimism and is talking about the downside. He doesn't do downside well - he prefers the good news.

But there's no walking away from the reality. The Government's treasured surplus target in 2014/15 may not happen. And if it wants to get there then more cuts are on the way.

Key will need to be careful though that he doesn't help shepherd the economy back into recession though. If he tightens the screws too much, he might send the economy backwards.

But he does have options and he's used them before, and he's threatening it again.

Last year the Government announced a zero budget - not one dollar on new spending.

This year it's planning to spend $800m of new money in the 2012 Budget. That's now under serious threat. I asked Key yesterday if another zero budget was possible and he replied "not impossible." It's early in the Budget cycle, but that is an ominous signal to the public service that more savage cuts are to come.

I believe the Government is hell bent on getting as close as possible to that surplus figure as possible and it will not let the public service and its thirst to spend stand in its way.

So the real warning from yesterday's speech must surely be the talk of another zero budget.

That would make it two consecutive budgets where no new money has been spent. That represents real cuts across the board. The public service should be nervous. Its budgets are shrinking, more lay-offs, more sackings are on the cards.

The Government had already signalled major change in that area late last year. But yesterday Key just threw another banana skin in front of every departmental head. It won't be lost on anyone in Wellington who runs a department what is required.

Labour has already started shouting about the low expectations under National and the savage cuts to come.

But in a weird way the crisis in Europe just helps Key and Bill English further. It gives them another mandate to take the knife to programmes and spending it doesn't like. It means job losses, that's what it really means. All this talk of a more efficient public service in reality means a leaner state sector.

And if you're in any doubt then listen to Key a bit more closely. He is strongly hinting and telling anyone who will listen that yesterday's speech was not the main one to start the year.

The big one will come in late February. The topic is "State Sector Reform." It's clear more change is coming - and Europe's meltdown will only strengthen the Government's resolve for change and savings.

So watch out - reform under National usually means two things - fewer staff and less spending - and nothing has changed.