Wealthy investors will no longer get cash refunds if they pay no tax, under a Labor plan that could fund future tax cuts for low and middle-income earners.
Labor will also give all businesses an instant $20,000 asset write-off to encourage new investment, making the government’s tax break permanent.
Treasurer Scott Morrison says Labor’s plan to wind back Howard-era rules allowing investors to claim tax imputations from dividends is “theft”, but Mr Shorten says the loophole is “absurd”.
“If you have accumulated $4 million in superannuation, congratulations,” Mr Shorten said in a speech in Sydney on Tuesday.
“But I just don’t believe you need help from other taxpayers to turn that into $8 million.”
The original scheme was introduced under Paul Keating to make sure company profits aren’t taxed twice – once with corporate tax and again via personal income tax.
But in 2000 John Howard allowed investors to get a cash refund from the government if their tax imputation was more than the tax they owed.
“They’re getting a refund on tax they haven’t even paid,” Mr Shorten said.
“I think most Australians will be surprised to know (about it).”
Self-managed super funds are major beneficiaries of the scheme, with some investors paying zero tax but still getting cash refunds of as much as $2.5 million a year.
Mr Shorten said getting rid of the loophole would allow Labor the option of offering tax cuts to low- and middle-income earners as part of its pre-election platform.
But Mr Morrison said low-income earners and pensioners would be taxed twice under the Labor plan.
“If the Labor Party are prepared to deny you what is effectively a tax refund, because you’ve overpaid your tax, where will they stop?” he told reporters.
Labor says Australia is the only developed country in the world with a fully refundable imputation credit scheme.
The policy would apply from July 1 next year under a Labor government and charities and not-for-profit institutions, such as universities, will be exempt.
The Parliamentary Budget Office estimates the policy will impact just eight per cent of taxpayers, including about 200,000 self-managed super funds.
Shadow treasurer Chris Bowen says the changes have the approval of the original system’s architect, Mr Keating.
The Australian Shareholders Association said the changes would hurt those who invest in Australian companies that pay dividends.
Mr Shorten said the instant write-off for new business investment would drive asset investment and job creation.
“We’re saying to Australian business ‘if you spend, we will reward you’,” he said.
The Australian Food and Grocery Council welcomed the instant write-off as a way of addressing declining investment in the sector.