The history of politicians who have dismissed the concerns of voters on the basis they would never vote for them anyway isn’t great — as Mitt Romney and Hillary Clinton both know well.

It is yet to be seen whether selectively removing elements of the dividend imputation system is wrong at a political level. However, it is clear that at a policy level it cannot be justified as anything other than a naked cash grab.

Though it seems complex, the imputation system arose because dividends form part of the income of two different entities. As a consequence, they can be taxed at the company level, the individual level, or both (double taxation). Dividend imputation is a system that removes the ‘both’ option.

As individual marginal tax rates differ — sometimes substantially — from the corporate rate, the choice of where to levy the tax potentially makes a big difference to the return to individual shareholders. Australia’s imputation system taxes dividends at the marginal rate of the individual shareholder, and credits (or imputes) the tax already paid by the company against any liability for tax on that income.

As Professor Kevin Davis (who opposes refunds of imputation credits) has noted, imputation makes company tax an investor withholding tax — where companies prepay tax on behalf of shareholders — in much the same way that employers withhold PAYG tax from employees.

If shareholders (or crucially the fund they are a member of) don’t have any other tax liabilities, then the tax already paid by the company is refunded to the shareholder. It is this step that Labor would stop.

One thing should be made clear: despite claims to the contrary, these refunds are not funded by taking money from other taxpayers — the money comes from tax withheld by companies on behalf of investors.

The response to this is that the system was never intended to allow for zero taxation to be levied on income. This may or may not be true. But regardless, it is not a principle of the tax system — and there are three counter-arguments that make this claim untenable.

First, there is no valid distinction that can be drawn between using imputation credits to reduce other tax liabilities and receiving those credits in cash. For example, the financial position is exactly the same if I gave you $100 in cash or if I used $100 of my money to pay off a debt you owed. I am still out $100, and you have received a $100 benefit. Yet Labor essentially argues the first method is a tax lurk.

Second, Labor’s changes will still allow for zero taxation to be levied on some corporate income; you just have to be a member of a retail or industry super fund to get it.

They can use the credits to offset the tax liability at the fund level and stream the benefits to individual fund members in accordance with their personal tax rate. Self-managed super funds can’t.

The type of fund you are in shouldn’t determine your tax rate. That people in similar financial circumstances should be treated the same is a fundamental principle of fairness. Fairness doesn’t just mean taxing the ‘rich’ as much as you can by whatever means you have available.

Perhaps even more farcically, even a SMSF that is in accumulation phase will be able to benefit from imputation credits, but as soon as the person retires — when they actually need the income they are generating — their benefit drops to zero.

So if they received an $9500 benefit from a dividend the day before retirement, it falls to $8000 the day after. If anything, this is the opposite of what should happen (under the current system the retiree would receive an $11,000 benefit).

Finally, the so-called problem of retirees not paying tax on dividend income is actually a result of the flaws in our taxation of super.

As has been noted in many places, the most efficient form of taxation of retirement savings would be to levy taxes only in retirement. Our current system does the opposite, taxing at every stage but retirement. It has created a large class of well-off individuals who pay no tax at all.

Moving to a more efficient system would largely eliminate the problem of a small group of wealthy retirees receiving large refund cheques. This would spread the benefits of imputation credit refunds to more people, but with each recipient receiving far less.

Whatever you think of the merits of increasing taxes — and there are good reasons to think taxes should be lower not higher — tax rises should be both consistent with good principles, and fair. There are changes to imputation that could meet these criteria, but it’s clear Labor’s policy meets neither.

Simon Cowan is research director at the Centre for Independent Studies.