Former treasurer Peter Costello says changing or ending tax credits for shareholders who get dividends would see investors sending their money overseas.
The financial system inquiry (FSI) last year questioned the wisdom of dividend imputations, where shareholders get a tax credit for the profits a firm shares with investors via distributions.
But Mr Costello, who is now chairman of the Future Fund, said changing or ending the system would reduce the appeal of Australian shares.
"If it's modified, then Australian equities will be less attractive, no doubt about that," he told a wealth summit in Sydney.
"That would lead super funds and other investors, I think, probably to increase their allocation overseas."
The FSI said dividend imputations, introduced by the Hawke government in 1987, were less beneficial in an era of more open global capital markets.
"The case for retaining dividend imputation is less clear than in the past," its final report said.
Mr Costello also spoke out against the idea of taxing the superannuation earnings of the wealthy.
"I find those who complain about large superannuation balances held by others sometimes don't know, or leave out the fact, that to get large balances like that, you have to make voluntary contributions which have already been taxed," he said.
Opposition Leader Bill Shorten is proposing to tax superannuation earnings of more than $75,000 at a concessional rate of 15 per cent.
Mr Costello said he stood by a decision he made as treasurer in 2006 to make $150,000 annual super contributions tax free, even though his Liberal successor Joe Hockey has indicated this could be reviewed.
"At the time, it was supported on a bipartisan basis," he said.
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