The paper contains a number of errors, ignores the facts and shows a lack of understanding of how superannuation tax works. It is correct in saying that the policy rationale of dividend imputation is to prevent double taxation of dividends. However, the policy rationale of dividend imputation is not to eliminate taxation at the company level by refunding the franking credit to taxpayers who pay no tax. For example, a company makes $100 profit, pays $30 company tax and pays a $70 dividend. The franking system was designed to ensure the $70 dividend is not tax twice to the level of 30% (ie the company tax rate) . If the shareholder has a 0% tax rate (such as a super fund in the pension phase or someone below the tax free threshold), this shareholder currently receives a $30 franking credit refund. Consequently, the the govt collects $30 from the company and provides this $30 to the shareholder as a franking credit refund, which means that the Govt collects a net $0 revenue. In contrast, if the shareholder is a taxpayer at the 30% marginal tax rate, the $70 dividend is not taxed twice (so the shareholder pays $0 tax on the $70 dividend), and the Govt collects $30 in revenue (ie the tax paid by the company).
This is why refunding franking credits to taxpayers who pay no tax is a gift or a welfare payment from the Govt, which, in my view, has no social or economic justification. I also like to highlight that the assertion in the paper "This creates a perverse outcome in that zero taxpayers end up paying more tax on franked dividends than some taxpayers" is completely false, illogical and complete rubbish - zero taxpayers do not pay more tax on franked dividends as their tax liability on the franked dividends is in fact $0.
The article is also in error saying that removing the franking credit refund means that people with a SMSF in the pension phase have an incentive to move to an industry or retail fund. This is false, as accounts in an industry and retail fund in the pension phase are proposed, under the Labor Party's policy, to be taxed exactly the same way as SMSFs. That is, pension funds operated by retail and industry funds also lose the franking credit refund so there is tax neutrality between these funds and SMSFs.
