Budgets are typically dreadfully dull – often achingly so. It is not that they contain little of relevance. Quite the contrary. If the density of worthy announcements was any guide to a power to captivate, government budgets would get blanket airplay on every radio station.

Precisely the opposite is true. The reality is this: on a normal day most developments coming out of a budget by themselves would sustain public debate for a week, but coming together they dull the senses with the weight of information.

The Australian budget handed down last week was no exception. The web page, where the federal government set out spending on the “major initiatives” amounted to 20 separate line items covering more than $A6 billion of new spending on projects as diverse as public transport, education, hospitals, jobs, training rural workforce development and parental leave, pensions and superannuation – among other things.

There were few among these initiatives that did not have some relevance to share market investors. For example, the principal beneficiaries of the single largest initiative, an $A2.7 billion expansion of the aged pension, are likely to be Wesfarmers and Woolworths. Oldies, already just scraping by, might splash out on an extra tin of tuna or treat the cat to a can of Whiskas deluxe.

The extension of a scheme to grant $A7000 to those buying their first home will be to trickle down to investors in cement manufacturer Adelaide Brighton and sugar-to-plasterboard manufacturer CSR (part owned by Sir Ron Brierley’s Guinness Peat Group) and building materials giants Fletcher Building and Boral. AMP will suffer from the cut to employer superannuation contributions.

The mainstream debate inevitably degenerates into an argument over the size of the government’s surplus or deficit. The actual figure is taken as a kind of a score; the better the number, by implication, the better the economic management.

In reality the figures have, until now, been rather meaningless. They were not that different from the earlier year’s figures. The Australian economy all through the Howard era performed. The government paid its way.

The Rudd government has not been so fortunate. In a little over a year a surplus has turned into a budget deficit of nearly $A60 billion and the Treasury is making grim forecasts for the next few years.

And, more to the point, this time the numbers are more than a little meaningful. A one year budget deficit of the magnitude the Australian government expects, is not serious. What marks this from its predecessors is that the deficits are expected to continue for some time.

Between now and 2014 the Australian government will issue an extra $A300.8 billion of bonds on to public markets. To put this in context, the new issuance equates to at least double the Australian banks’ new issuance of $A25-30 billion a year, of which just a third is issued domestically.

There should be no doubt about the ability of the government to sell this debt. What should raise concerns is the price at which they sell it – the annual interest rate it attracts.

The fact of the matter is this: just about every western economy is doing exactly the same as the Australian government. The IMF currently estimates that the US, Japan, Germany and the UK will issue about $US4 trillion in net additional government debt. This is the equivalent to $US280 trillion of the five year average net sovereign debt issued by all advanced economies. Odds are also on the possibility of such issuance continuing well into the next few years as governments across the world attempt to offset the effects of the credit crisis by pump-priming their economies.

This raises the prospect of intensifying competition between sovereign states for capital and more importantly, the prospect that private sector borrowers could be crowded out. The upshot of all of this is a much higher risk-free rate and higher nominal and real borrowing costs for private sector borrowers.

Why does this matter? Higher borrowing costs reduce profits, raise the hurdle for new projects seeking funding and weigh on asset prices.

If all of this comes to pass in any meaningful way before the world economy has gotten back on its feet, the global recovery could become much more protracted.

The first hints that this is more than a fanciful theory has been the rise in the US long bond yields, reflecting expectations of higher long-term rates.

However, there are some reasons to not be overly pessimistic in the short term. First credit market conditions are improving. The differential between risk free rates and bank lending rates are narrowing, offsetting any tendency for rising risk-free rates. The 30-year Freddie Mac mortgage is, for instance, 4.8%, its lowest level since records began in 1971. Moreover, central banks such as the US Federal Reserve and the Bank of England are buying billions in government debt and they are using a number of other policy tools to prevent rising nominal rates.

Governments are meanwhile lengthening the duration of their borrowings pushing refinancing out to a period when (hopefully) the economy is in better shape.

Lastly demand for debt from private borrowers, relative to the credit-market explosion in the years leading up to the bust is relatively muted. At present there is no crowding out.

The issue in short, looks to be an emerging one that could rear its head once (if) the economy starts to recover and companies seek to increase their borrowings.

One last word: who benefits most from this? It’s the futures exchanges that trade interest rate derivatives and in this part of the world that means the ASX.

Richard Inder is an investment adviser at Macquarie Private Wealth. His disclosure statement is free and is available on request. Clients may hold shares in the firms mentioned. Comments, think differently? Write to richard.inder@macquarie.com