In the process it wants the new policy, essentially a tax rise for the rich, to contrast with the Government’s proposed tax cuts for big companies.
Labor in government would eliminate the concession for investors related to dividend imputation which has been operating since the Coalition government of John Howard.
Opposition Leader Bill Shorten today says the savings from ending the “tidy little arrangement” would go towards fixing the Budget bottom line expected to be hit by a $24 billion deficit this financial year.
Politically the Labor policy will be used to challenge the $65 billion the Government wants to cut from the corporate tax bill over 10 years.
“Every dollar that slips through these loopholes is a dollar that cannot be invested in the Australian people and their potential,” Mr Shorten says in a speech prepared for today.
“Every dollar allocated to tidy little arrangements for people who already have millions of dollars, is a dollar that can’t be used to repair the budget and bring Australia back to surplus.
“And every dollar our opponents spend on preserving exemptions for the top end of town is a dollar they have to cut from schools and hospitals, extracted from middle Australia in tax increases or forcing taxpayers to pay more interest on the nation’s debt.”
The Labor target is a tax loophole used by wealthy investors and is based on dividend imputation.
Dividend imputation was introduced in 1987 by then Labor Treasurer Paul Keating to prevent double taxation. Investors could be given credits on tax.
Company profits had already been taxed before they were distributed to shareholders as dividends. It effectively made the dividends tax free.
However, Liberal Treasurer Peter Costello in the Howard government created a further concession in which individuals and superannuation funds could get cash refund from the Australian Taxation Office if the imputation credits exceeded the tax they owed.
Shadow treasurer Chris Bowen says Australia is the only OECD industrialised country with a fully refundable dividend imputation credit system.
In addition to the cut in expenditure involved in closing the loophole, Labor will package other elements of its tax policy, including the removal of negative gearing of housing, as more household friendly than that of Prime Minister Malcolm Turnbull.
Mr Shorten today says removing the dividend concession would save the budget $11.4 billion over the final two years of the current forward estimates and $59 billion over the medium term.
“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 said.
“ 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.”