Shorten hits shareholders with plan for $59 billion revenue grab

Labor will target more than 1 million Australian taxpayers who own shares in a $59 billion revenue push that would take its heaviest toll on retirees, as Bill Shorten wages war on “unfair” cash refunds and ramps up attacks on the rich.

In a bold move that hurts wealthier voters, the Opposition Leader will reveal plans to help balance the budget by cancelling cash refunds worth an average of $5000 a year to taxpayers who own shares and claim tax credits on their dividends.

The stunning decision takes aim at more affluent taxpayers in a “hit the rich” policy that is certain to spark a political fight over a group of voters still reeling from Prime Minister Malcolm Turnbull’s move to scale back superannuation tax breaks two years ago.

Opposition Leader Bill Shorten will announce another plank in Labor's economic policy on Tuesday.Credit: Dominic Lorrimer

As Labor fights to hold the marginal seat of Batman against a threat from the Greens this weekend, Mr Shorten will blast the Coalition for creating a “loophole” in 2001 on the tax credits paid on dividends.

Mr Shorten opens the new fight over shareholder credits after his long row with Mr Turnbull over company tax cuts, where he has attacked the “big end of town” for not paying enough tax.

Labor is calculating the political pain from the bold new plan will be worthwhile when it uses the huge revenue gain to pay for policies at the next election - including personal income tax cuts.

The Labor policy, seen by Fairfax Media, is aimed at raising $5.6 billion in 2020 and a similar amount every year, equivalent to about $4,800 on average each year for every taxpayer affected.

This is based on Labor assumptions the reforms would hit about 8 per cent of taxpayers, or around 1.17 million individuals and superannuation funds - including 200,000 self-managed super funds.

In a key pledge, Mr Shorten will promise to continue with dividend imputation for millions of taxpayers and would only change the rules for those whose taxable income is so low they qualify for cash refunds.

“Everyone will still be able to use imputation credits to reduce their tax - but not to claim cash refunds,” he says in a draft of his remarks to a policy summit on Tuesday.

“Reforming the system to eliminate this concession will save the budget $11.4 billion over the final two years of the current forward estimates and $59 billion over the medium term.”

Under dividend imputation rules, Australians are given franking credits on the dividends they receive for the shares they own, in order to avoid company profits being taxed twice.

Because the company has already paid tax on its earnings, its dividend payments to shareholders come with credits that reduce the individual’s tax bill every year.

Most workers have incomes that are high enough to ensure they still pay tax after the dividend credits are counted.

But when the individual has little or no income other than dividends, he or she ends up being owed money by the Australian Tax Office and then receiving it as a cash refund.

Former prime minister Paul Keating, who introduced dividend imputation as treasurer in 1987, did not include the cash refund in the original scheme.

The cash payments only began after 2001 when the Howard government, enjoying a substantial budget surplus, decided to help the relatively small group who claimed they were owed money from the ATO.

The Coalition policy cost the budget $550 million at the time but the bill has blown out to $5.6 billion a year because of the rise in the number of shareholders and dividend payments.

Mr Shorten will tell the Chifley Research Centre today, in a policy move advanced by shadow treasurer Chris Bowen, that nobody will “pay more tax” because the cash payments will stop.

“I want to emphasise a few important points here. Firstly, this change only affects a very small number of shareholders who currently have no tax liability and use their imputation credits to receive a cash refund,” he says in his draft speech.

“These people will no longer receive a cash refund - but they will not be paying any additional tax."

“Let me repeat that: a small number of people will no longer receive a cash refund - but they will not be paying any additional tax.”