One budget is not enough to derail a government, normally. But this time could be different.

The 2014 Budget is the most significant in a long time. I have an eager – some would say obsessive – interest in federal budgets, and I cannot remember a Budget that has got as much attention as this one.

Today marks four weeks since the second Tuesday in May, and Budget headlines are still around. For example:

 

I went through the internet archive. It shows the 2014 Budget produced not only a much bigger spike in interest in the Budget, but a much longer tail.  It is not common for budgets to be sparking discussion three weeks after they are released – people normally move on fast and a government only dreams about getting three weeks of “traction”.

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The graph above compiles mentions of the word Budget on the homepages of The Age and The Australian in the month around the Budget. I did an analysis for 2008 too, because the first Budget of the Rudd government would be a good comparison to the first Budget under Abbott. The data is a lot more spotty, but the pattern is the same. In 2008, Budget headlines died out after no more than a week.

Google trends data confirms that this Budget was a whopper as far as public interest goes.  The graph below shows share of searches from within Australia. (Google omits the vertical axis – I guess that’s proprietary data).

The massive spike in search should be a major worry for the government – search is trending away from “intellectual” topics and toward popular topics as the internet “matures” so you could expect successive budgets to show smaller spikes.

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The fact that this Budget has captured the public’s imagination so sharply is a major negative for the government.

 

The polls show how much people like it. Newspoll has tracked the government’s fall from 51-49 on April 6 to 46-54 by June 1.

The Coalition hopes this Budget will be forgotten in 11 months when they bring down the next one, and in 23 months time when they bring down their pre-election Budget, stuffed full of goodies. 

But first impressions count, and the government may actually have counted itself out with this Budget.

Welfare works – new research makes federal Budget look rather short-sighted

Babies are a problem for economics.

Economics says we must reward people for effort. If you train to become a teacher then work hard, society rewards you. This is both morally sound and economically important.

The flipside: if you could work but sit on the couch, you get nothing. This is both morally sound and economically important.

The moral and economic imperatives are aligned perfectly. Right up until birth.

Children crack the perfection of this theory. A child born into a poor household will be punished by material poverty they do not “deserve”. A child born into a rich household will be rewarded in ways they have not earned.

So we muddy the moral and economic imperatives for generation 1, in order to secure the moral and economic imperative for generation 2. A trade-off. 

Decisions about this trade-off are shaped by a number of beliefs.

1. Does providing welfare hurt incentives for work?

2. Does raising taxes to pay for welfare hurt the economy?

3. Does welfare really help the second generation, or foster a culture of entitlement and dependency?

Just the other day I was snacking on this "coffee caviar" in a Fitzroy cafe. This Budget doesn't hurt me. Does our society have its priorities straight?
Just the other day I was snacking on this “coffee caviar” in a Fitzroy cafe, but this Budget doesn’t really hurt me. Does our society have its priorities straight?

The recent Budget by Messrs Hockey and Abbott reflects beliefs on all of these. It took an axe to welfare payments of all sorts.

So it was extremely timely to see new research (released May 12 by the US National Bureau of Economic Research) on the third point above – the effect of welfare payments on the second generation.

Researchers exploited a natural experiment to see the long run effect of cash payments to poor single-parent families in the United States. They compared the offspring of mothers accepted into a payment program with those rejected.

A stark effect is revealed:

“Male children of accepted applicants lived one year longer than those of rejected mothers. Male children of accepted mothers received one-third more years of schooling, were less likely to be underweight, and had higher income in adulthood than children of rejected mothers.”

The positive differential comes despite the boys who were rejected from the program being slightly better off on average prior to the government intervention. That means the effects are, if anything, likely to be an understimate. (The research is unable to track results for females over the long run because of their tendency to change their names. The use of a very old program allows them to more fully collect data on longevity.)

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“While conditions today differ significantly from those at the beginning of the twentieth century, three important similarities remain. Then and now, women raising children alone (whether divorced, unmarried, widowed, abandoned, etc.) represent the most impoverished type of family. In fact, the income gap between children in two-parent versus single-mother families has only grown over time”

This research is very timely.

The 2014 federal Budget cuts a payment that goes to single parents: Family Tax Benefit Part B. The government has not only capped the rate of the payment from 2014 but reduced eligibility. Parents will now be cut off when their youngest child turns 6, not when it turns 18.

The Budget replaces Family Tax Benefit Part B with a new allowance, worth $750 per child per year. That will work out as less for many smaller single parent families. Family Tax Benefit Part B was worth up to $4,172 a year.

Single parent families will “manage” – buying cheaper groceries, scrimping on clothes and driving less. But these impacts add up. The cut to their incomes will likely be felt by their children for a long time, in educational attainment, income, and even longevity.