The Irish League of Credit Unions is hopeful that the Minister for Finance, Mr McCreevy, will accept amendments to the Finance Bill which would ensure members' dividends are exempt from tax for amounts of up to approximately £700 per annum.
The league, which is to meet Mr McCreevy on Tuesday, is also hoping he will scrap his proposal that unions report dividend payments over a certain amount to the Revenue. Instead, they are proposing that a 20 per cent retention tax be collected on dividends from shareholdings of over £15,000, which would be about £700 per annum at current rates.
The tax would be collected and returned to the Revenue on a block basis. This is the way DIRT (deposit interest retention tax) is collected. Banks collect the tax from all eligible accounts and then transfer the money in a lump sum to the Revenue. Details of the various accounts, including the account-holders' names, are not divulged to the Revenue.
Mr McCreevy's proposal that the names of credit union members who earn dividends of over £500 be reported to the Revenue has been strongly criticised by the league. Mr Tony Smyth, its general secretary, said at a press briefing yesterday that the proposal had created "panic" among many elderly credit union members.
This was not because they were evading tax, but simply because the idea of their savings being reported created anxiety. The 1 to 3 per cent of members who would have sufficiently large shareholdings to receive a dividend of £500 were mostly elderly people who had been making very small weekly savings for two or three decades.
"There has been a huge reaction", Mr Smyth said. "We've had people on the telephone all day. An enormous amount of assurance was needed." However, if a resolution could be arrived at quickly, "then the whole thing could be put to bed".
He maintained that the banks saw the credit union movement as a threat and had put pressure on the Minister. However, it was his view that the league was not competing with the banks. He said he accepted the Minister's statement that he (Mr McCreevy) thought his proposals were better than those which had been made by the league itself.
Mr Smyth said that the league had not been in contact with the Taoiseach, Mr Ahern. "Bertie would be a very good friend of the union, in his constituency and around the country", he added.
The credit union movement's proposal on shareholdings is: an exemption limit on dividends on shareholdings up to £15,000, with dividends on any shares over this limit being subject to 20 per cent tax, to be collected and returned to the Revenue on a block basis. The average interest rate for credit unions is 4.3 per cent.
The proposed 20 per cent tax is acceptable to the league and was actually sought by many middlesized to large credit unions. The league welcomes the continuation of the exemption from corporation tax. Mr Smyth said it was important that Mr McCreevy fully recognised the significance of the "common bond and mutual shareholding" hallmarks of the credit union movement.
The president of the ICMSA, Mr Frank Allen, said he was shocked that Mr McCreevy had made a proposal which would undermine the mutual status of the credit unions. He called on the Minister to think again.
Mr Brendan Hayes, regional secretary of SIPTU, said that the measures in the Finance Bill were an attempt to treat the credit union movement like a commercial bank, "an institution which it is clearly not".
