Mr Morrison said on Tuesday that the policy, which allows shareholders who do not pay tax to get a tax cash refund through dividend imputation, meant people would be taxed twice.
Incumbent Treasurer Scott Morrison criticized the plan, accusing Shorten of wanting to "steal" money from pensioners and retirees who invest in the stock market.
The Hawke-Keating government introduced dividend imputation system in 1987 where the shareholders receive a tax credit which they use to offset their income-tax liabilities and avoid being taxed twice.
Bill Shorten, ALP Leader, on Tuesday announced that if he leads the government, he will abolish cash refunds which are worth an average of 5,000 Australian dollars (3,935 US dollars) a year to taxpayers who own shares and claim tax credits on dividends.
"If nothing is done, this subsidy alone will cost the budget $8 billion every single year", Mr Shorten said in a speech in Sydney.
Shutting down the concession will save the budget $11.4 billion next financial year and $59 billion over the medium term, he added.
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Labor leader Bill Shorten has promised to close a $5 billion tax refund loophole.
Labor's proposal for imputation credits "unfairly targets" the SMSF sector and will lead to unforeseen consequences including significant shits in investment strategies, according to various groups in the super industry.
Under the current system, investors who pay zero tax can get a cash refund from the government because the companies they invest in have to pay tax on their profits.
The policy would apply from July 1 next year under a Labor government and only affect future earnings from then on.
Self-managed super funds are a major beneficiary of the scheme, with some funds getting cash refunds of more than $2.5 million a year.
"Firstly, this change only affects a very small number of shareholders who now have no tax liability and use their imputation credits to receive a cash refund".
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Shadow treasurer Chris Bowen says the changes have the approval of the original system's architect, Mr Keating.
"I have discussed it with Paul", he told ABC radio.
Charities and not-for-profit institutions, such as universities, will be exempt from these changes.
"It is unfair to steal someone's tax refund, I wouldn't do it on your tax refund as a normal income tax payer and I'm not going to do it for pensioners and retirees who are simply making smart decisions in an environment like this where they can get a better return on buying shares".
The Parliamentary Budget Office estimates the policy would impact just 8 per cent of taxpayers, including about 200,000 self-managed super funds.
David Whiteley, the chief executive of Industry Super Australia, which represents industry super funds, said Labor's proposal would will have little or no impact on the super of most people.
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