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Government lashes Labor's $59 billion 'tax hit' as anti-growth

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The Turnbull government has immediately lashed out at Labor's proposed termination of cash refunds for investors, worth $5.6 billion a year, describing the new policy as "brutal" and a theft of people's legitimate tax refunds.

In a move mostly affecting wealthier Australians, a Bill Shorten-led Labor government would end cash refunds for taxpayers who own shares and claim tax credits on their dividends.

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Labor will target more than 1 million Australian taxpayers who own shares in a $59 billion revenue push.

Treasurer Scott Morrison said the policy was a "brutal and cruel blow for retirees, for pensioners" which would bring the total value of Labor's tax proposals to more than $200 billion.

"Labor wants to steal your tax refund. That's what this is. It's a tax refund for tax that has already been paid. That's fair," Mr Morrison said.

"If the Labor Party are prepared to double tax, to make you pay twice the tax that you should, 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?"

Finance Minister Mathias Cormann said the policy was another part of the opposition's "high-taxing agenda" that would touch all voters and lead to less investment, lower jobs growth and lower wages growth.


"Whatever way Bill Shorten tries to dress this up, this is going to be a tax hit, a $59 billion tax hit by his own numbers, which will hit lower and middle-income earners the hardest," Senator Cormann told ABC.

"If you are a self-funded retiree on a low income, you will pay more tax. If you are a pensioner who is invested in some shares, you will pay more tax. More than a million retirees, many of them pensioners or part pensioners, will pay more tax under this proposal."

The Labor policy 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. It would reap $59 billion over a decade.

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.

Critically, Labor has committed to keeping dividend imputation, under which taxpayers are given franking credits on the dividends they receive from shareholdings, in order to avoid company profits being taxed twice. 

Because the company has already paid corporate tax on its earnings, the dividend payments to shareholders come with credits that reduce their income tax bill. Most workers have incomes high enough to ensure they still pay tax.

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.

Shadow treasurer Chris Bowen said the status quo was an "unsustainable concession" that had blown out since it was first introduced.

"I understand that people who will no longer receive their refunds will be unhappy, but importantly nobody will be receiving a tax bill. It's not like we'll be taxing people for the first time, or somebody will start paying tax. But some people who have managed their affairs to get a tax refund out of dividend imputation, will no longer receive it," Mr Bowen told ABC radio.

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.

"We understand it's controversial, we understand the government will engage in a scare campaign, all those things," Mr Bowen said.

"But this is a necessary reform and in keeping with our boldness and, frankly, our courage in dealing with things like negative gearing, capital gains tax and family trusts, this is a reform whose time has come."

Senator Cormann rejected the suggestion that the cash refunds were an unaffordable loophole, saying the measure was a design feature introduced with bipartisan support by the Howard government.