I think it is fair to say that in Australia we believe tax policy should be equitable, progressive and reliable. The Labor Party’s plan to scrap full tax refunds on dividend income fails each of these principles by reintroducing double taxation and changing the rules on Australians who have worked, saved and planned for their retirement under a system that has remained fundamentally unchanged for 18 years.

Shadow treasurer Chris Bowen’s assertion last night that the current arrangements are “welfare for the wealthy” is dismissive and arrogant. It demonstrates contempt for individuals with valid concerns that their lives will be grossly impacted – and he may come to regret it. Our poll of the 30,000 signatories to our petition to maintain the current dividend imputation system found that 83 per cent of respondents who vote Labor would change their vote, in many cases for the first time ever, because of the retirement tax.

Former prime minister Paul Keating established the current dividend imputation system in 1987 to remove the double taxation of company profits at the corporate and shareholder level. In 2001, the Howard government improved the system by ensuring that individuals who were subject to a marginal tax rate below the company rate were appropriately compensated for the tax they had paid at a higher rate.

The current proposal by Labor to remove cash refunds for excess tax paid on dividends would adversely affect all Australians. This is because the system not only removes double taxation but also promotes economic stability by discouraging corporate debt and encouraging investment in Australia, which creates jobs, resulting in more tax being paid.

While the nation would be negatively impacted by this policy, low-income earners and modest retirees would be the hardest hit. Low-income earners looking to get ahead by investing in the equity market will be the greatest losers under this scheme as the current imputation system appropriately reimburses them for the excess taxation represented by the difference between their marginal tax rate (0-19 per cent) and the large company tax rate (30 per cent). Labor’s proposal would remove this benefit from low-income earners while retaining the full benefit of franking credits for those on a high marginal tax rate.

Labor’s amendment to the policy to exclude individuals receiving the age pension in an SMSF before March 28, 2018, is an admission of its draconian nature and it is a highly discriminatory exclusion. We have been contacted by hundreds of people who will slip through the cracks and their stories are often tragic. Of all taxpayers over the age of 75, 70 per cent receive franking credits, with an average value of $6347 a year. These individuals would lose this income if they were not receiving the age pension. Retirees who are unable to return to the workforce will have to look elsewhere to supplement their loss through riskier investments or government support. Women would be more severely impacted than men as women generally enter the pension phase with lower balances than men. As at June 2016, the average self-managed superannuation fund member balance was $511,000 for women and $641,000 for men. The discrimination continues by creating a two-tier superannuation system where union-supported industry superannuation funds can claim cash refunds but SMSFs cannot.

Despite the pain this policy will cause, the purported benefits are incredibly weak. We expect that government costs will increase as more individuals receive the age pension, and the savings will not materialise due to behavioural changes. For example, individuals will choose to invest in non-Australian companies, and companies will be more inclined to invest overseas or to increase their levels of tax-deductible debt.

Labor’s policy is deeply flawed. It should be abandoned because low-income earners and modest retirees should not be collateral damage in a poorly designed plan to generate cost savings that will ultimately fail to come to fruition.

Geoff Wilson is chairman and chief investment officer of Wilson Asset Management.