The row between credit unions and the Government took a new twist yesterday with revelations of the content of a letter from the EU Competition Commissioner stating that the Minister for Finance is, after all, free to reform credit union tax despite a European Commission investigation into the issue.
Deferring any further decisions on the matter, Mr McCreevy had said that any change in credit union tax law at this stage could aggravate the complaint to the EU from Irish financial institutions alleging bias in favour of credit unions.
However, the letter yesterday from the EU Competition Commissioner, Mr Mario Monti, to the Munster MEP, Mr Pat Cox, indicates that the Minister is free to make changes demanded by the credit union movement.
In his letter, Mr Monti states his services are currently examining the situation from the point of view of the state aid rules of the Maastricht Treaty. He says: "The pending investigation does, in principle, not preclude the Minister for Finance from reforming the credit unions' tax position."
The Commissioner added that "such change might then of course lead to different conclusions by my services", indicating that any changes made could be investigated by him.
Last night, a spokesman for the Irish League of Credit Unions reiterated its call to the Minister to change credit union tax law to exclude the first £375 of dividends to savers from DIRT tax. It wants savers earning more than £750 in dividends to be taxed at 20 per cent on the entire dividend.
The spokesman said the letter from Mr Monti backed up what the credit unions had been saying all along. "There is nothing stopping the Minister from making the changes that we suggested. This letter backs this up," he said.
The Taoiseach, Mr Ahern, and the Tanaiste, Ms Harney, met the Irish League of Credit Unions in Government Buildings two weeks ago in an attempt to defuse the row. Mr McCreevy has refuse d to meet with the league for two years.
After the meeting, the credit unions said they accepted the Government position that a complaint to the European Commission should be resolved before any further moves were made.
However, last night a spokesman said following the letter from Mr Monti, it was reiterating its call on the Government to introduce change. "It is clear that there is nothing stopping the Government from moving on this issue."
A spokesman for the Minister for Finance said: "There is nothing new in this." He refused to comment further.
The row over credit union tax started in 1998 when Mr McCreevy proposed the introduction of DIRT tax of 20 per cent on credit union dividends. There was an outcry from credit unions when Mr McCreevy refused to exempt small savers and the proposal was withdrawn.
The Minister established a working group to examine the issue and a majority recommended the imposition of DIRT tax on dividends over u £375.
The row erupted again last week when Mr McCreevy accused the credit unions during the second stage of the Finance Bill of "hypocrisy" and of promoting tax evasion.