Bill Shorten says taxpayer-funded handouts for wealthy share investors are "millionaire welfare" and Labor will axe the $8 billion tax loophole.
But Malcolm Turnbull says the plan to wind back the franking credit system will rob pensioners and low-income earners.
Labor wants to reform the system that allows share investors who technically don't earn a taxable income to get government cash refunds for share dividends.
"If millionaires are getting hundreds of thousands of dollars of taxpayer money, that's not a welfare system I'm going to back," Mr Shorten told reporters on Wednesday.
"We are going to stop multi-millionaire welfare funded by the taxpayers of Australia."
Some retirees get up to $2.5 million a year in cash from the scheme.
The government says Labor's plan will hit retirees who rely on the cash payouts because they technically don't earn a taxable income on their share portfolios.
"Have a word to your parents and they'll tell you how they feel about it," the prime minister told reporters in Brisbane.
"Shorten's budget plans are completely out of control and now he's robbing pensioners to pay for his incompetence."
But the Labor leader hit back.
"Why is it that Malcolm Turnbull will fight for millionaire welfare but not the welfare of battlers?" he asked.
The original scheme was introduced under Paul Keating to make sure company profits weren't taxed twice - once with corporate tax and again via personal income tax.
But changes under John Howard in 2000 allowed investors to get a cash refund from the government if their tax imputation was more than the tax they owed.
Labor will abolish these refunds - which cost $8 billion a year - if elected.
Treasurer Scott Morrison rejected the suggestion share investors were asset rich, arguing it was a "cruel con" by the opposition.
"We're focused on what people have to live on," he told Sky News.
But Chris Bowen rejected the treasurer's claim that 97 per cent of individuals who receive the refund have a taxable income below $87,000.
"The fact is a lot of the income people receive in retirement is 'tax-free' because it comes out of retirement-phase super funds," the shadow treasurer said.
Mr Bowen said the plan would affect about 200,000 people who claim a pension.
Former treasurer Peter Costello insists the Labor Party's plan will not affect high-income earners but rather those on low incomes.
"This will affect millions of retirees, age-pensioners and part-pensioners. This is a tax rise for them," he told News Corp.
Labor's latest announcement is part of a suite of measures in the lead up to the next election, including a 20 per cent instant asset write-off for businesses undertaking investments worth over $20,000.
