Responding to the Labor leader’s proposal to crack down on the excess imputation credits for superannuation funds and individuals, the Association of Superannuation Funds of Australia (ASFA) has expressed concern over the “constant tinkering” with superannuation settings.

Mr Shorten’s proposal, announced today in a speech to KPMG, would see individuals no longer able to claim cash refunds on excess imputation credits that had not been applied to offset tax liabilities.

The Australian dividend imputation system was brought in by Paul Keating to mitigate the double taxation on dividends from company profits, and allowed shareholders to use imputation credits to decrease overall tax liability.

Under the Howard government, an additional concession was brought in that allowed individuals and super funds to garner a cash refund if their imputation credits were larger than the tax they owed.

While Mr Shorten argued that a step back to the Keating-era imputation system would impact only 8 per cent of taxpayers and was technically a withdrawn refund, rather than a tax hike, ASFA CEO Dr Martin Fahy has warned that the reform will “erode retirement incomes”.

“Constant tinkering with the settings ultimately undermines confidence in the superannuation system, at a time when we want to encourage more people to be self-funded in retirement,” Dr Fahy said.

“The system already has a $1.6 million cap in the retirement phase and our analysis show recent reforms to superannuation and the retirement funding system are working with time needed for these changes to be bedded down.”

Mr Shorten argued that ending refunds on excess imputation credits, along with reforming negative gearing, would redistribute the gains earned by the “top end of town”. He noted that SMSFs are a major beneficiary of the arrangement, with 50 per cent of the tax benefit accrued by the top 10 per cent of SMSF balances.

The ALP leader contended that this “unfair revenue leakage” of $5 billion, by Labor’s estimates, puts a burden on lower income Australians.

However, while it would impact about 8 per cent of taxpayers and 200,000 SMSFs, ASFA warned that the proposal could have a number of unintended consequences.

“At face value, it appears that this proposal would impact Mum and Dad investors both through their superannuation and through the shares they own outside of super and compromise the long-standing investment neutrality principle,” Dr Fahy said.

“There are a range of critical questions which need to be addressed, including whether the proposal would drive a bias to certain asset classes or distort the system in other ways.”

SMSF Association CEO John Maroney agreed, telling Nest Egg that the SMSF Association “strongly opposes” the proposal.

He explained that the association supports the current policy settings for three key reasons.

“It removes double taxation of corporate profits, promotes corporate discipline in capital management and encourages corporate compliance with tax obligations,” Mr Maroney said.

“Altering or removing dividend imputation would have a significant impact on: superannuation funds, which are significant investors in Australian equities; and on retirees for whom refundable franking credits increase their retirement income.

“Changes to dividend imputation would require long transitional timeframes and offsetting tax reductions for superannuation funds.”

Continuing, he said the proposal “unfairly targets” one sector of the community who have worked towards being self-sufficient in retirement.

“The association would dispute the argument that it’s only going to affect the very wealthy. Our back of an envelope figures show it will cut $5,000 of income from retirees earning about $50,000 a year,” Mr Maroney said.

However, Industry Super Australia disagreed. Chief executive David Whiteley said the “sensible” proposal could boost fairness in the superannuation system, provided that the money recouped was put towards modernising the super system.

He said, “Super funds where most Australians have their retirement savings will be largely unaffected by this proposal because the imputation credits are exhausted offsetting tax liabilities of the fund.

“It has been evident for several years that policy changes are needed to modernise the super system. There is a need to make the system fairer and by reducing reliance on the aged pension, more economically sustainable.

“Currently, at retirement age, the super savings gap between women and men on the same salary is 47.4 per cent. This gender super gap must be addressed as a result of this policy proposal.”

Continuing, Mr Whiteley called on the government to support the proposal.

That, however, seems unlikely.

Treasurer Scott Morrison, in a series of tweets this morning, has accused Labor of hitting Australians with more than $200 billion in tax, should they be elected.

Mr Morrison said, “Labor's latest tax hike is a $59 billion slug on more than 1 million pensioners, retirees and low income earners who will get taxed twice by Labor on what they earn from investing their hard earned savings.”

The Australian Shareholders’ Association (ASA) agreed. The association put forward that retirees and future retirees have been structuring their investments with the current dividend imputation structure in mind. Any changes would hurt investors who prefer higher dividend-paying Australian shares.

ASA CEO Judith Fox said, “The potential for ongoing tweaking throws retirement planning into disarray. Both parties need to sit down and comprehensively evaluate the tax and superannuation system so that self-funded retirement is workable."

Provided Labor won the next election, the policy would apply from 1 July 2019 and affect solely future earnings and franked dividends accrued in the next financial year.

In his speech, Mr Shorten emphasised that the reform would not end dividend imputation itself, but the application of it to claim cash refunds.

“A small number of people will no longer receive a cash refund but they will not be paying any additional tax,” he said.

“Our tax reforms mean we can fund our investment guarantee without slashing funding for schools or hospitals,” Mr Shorten continued, arguing that “that’s Labor’s plan, a fair go for all Australians”.