The Opposition will seek to embarrass the Minister for Finance, Mr McCreevy, in the Dail next week over his approach to credit unions. A Fine Gael private members' motion to be discussed on Tuesday and Wednesday calls on the Government to amend the Finance Bill so that "a fair tax regime" is applied to credit unions.
The Fine Gael spokesman on Finance, Mr Michael Noonan, said last night the Minister's "war on credit unions has gone on too long and his lenient approach to the banks is in marked contrast to his hostile attitude to the credit union movement". Fine Gael wants the Government to amend the Finance Bill to take account of the recommendations of the working group on the taxation of credit unions. The working group recommended in 1998 that credit unions remain exempt from corporation tax and not be required to report interest or dividends on savings to the Revenue Commissioners.
Mr Noonan said the Minister had avoided meeting credit union representatives for the last two years. A proposal in the 1998 budget to tax dividends above £375 from credit union savings generated considerable controversy and forced Mr McCreevy to do a U-turn in the subsequent Finance Bill.
The Irish League of Credit Unions has called for the first £375 of dividends on credit union savings to be exempt from tax where a member has less than £7,500 in savings. It is estimated this proposal would affect about 1 per cent of credit union accounts.
However, after the controversy in 1998, the Government has been reluctant to revisit the area. The European Union competition directorate is currently investigating the tax treatment of credit unions to determine whether they have been favourably treated by the State.
The investigation followed a complaint received by the Irish Mortgage and Savings Association. This is an umbrella group for several of the State's leading financial institutions. These include Irish Life & Permanent, EBS, First Active, Irish Nationwide and ICS Building Society.
The IMSA has alleged that credit unions benefited from preferential tax treatment by not being liable for corporation tax, while its members do not pay retention tax on their savings income.
The outcome of the European Union investigation could threaten the tax-free status of credit unions, with the possible imposition of corporation tax on their surpluses. However, while the investigation is continuing, Mr McCreevy is unlikely to make any policy changes to the tax treatment of credit unions.
