ASFA chief executive Pauline Vamos said while removing or changing dividend imputation might seem like a quick revenue fix for the government now, it will have negative long-term effects on Australians’ retirement savings.

"Initiatives like franking credits help to incentivise Australians to put money away for retirement as early and as often as possible,” said Ms Vamos.

“If we remove this benefit, it will have the most negative impact on retirees and low- to middle-income Australians who will see the tax rates on their superannuation earnings raised from 0 and 15 per cent respectively to 30 per cent across the board.”

Ms Vamos said that currently, dividend imputation over both the accumulation and retirement stages leads to an increase in retirement income streams of around 13 per cent.

“For a worker on an average income this equates to $4,000 more in retirement per annum,” she said.

“Even with the benefit of dividend imputation, only 35 per cent of Australians are retiring with enough superannuation to live a comfortable lifestyle – we clearly need to be helping Australians to bolster these savings instead."

A decrease in retirement income streams Ms Vamos highlighted would also have a long-term negative effect for Australian taxpayers, who would bear around half the cost through increased public pension entitlement. 

The report also indicated that a complete removal of dividend imputation might lessen the attractiveness of domestic equities and therefore a reduction in investment.

ASFA said a return to double-taxation of company income could also create an investor bias in favour of debt financing, rather than equity investment.

"It is imperative that we take a long-term view when considering tax reform and adequately cater for our growing retiree population," said Ms Vamos.