Credit union calls for tax exemption on dividends would be an invitation to evade tax, the Minister for Finance told the Dail. Mr McCreevy claimed the Opposition were advocating a system of tax evasion and he accused them of hypocrisy.

However, Fine Gael and Labour rejected this and Labour's finance spokesman, Mr Derek McDowell, said that if they were approving such a system then it was being backed by the Taoiseach, Government backbenchers and by the Independent TDs as well.

Mr McDowell had introduced an amendment to the Finance Bill, which gives legal effect to the Budget. Raising the controversial issue of tax on credit union dividends, he called for the first £375 to be exempt from tax.

He said a dividend paid on a credit union share was different to any other share because it was of fixed value and did not go up or down according to the market.

Mr McDowell said that if it was a recipe for evading tax, then the Minister was describing the recommendations of the working group as a recipe for tax evasion. He also challenged the Independent TDs that they had a straightforward choice - "either they keep their word given to the Irish League of Credit Unions to support credit unions in attempting to get a change in the regime for taxation of dividends, or they do not." Mr McCreevy said the Irish League of Credit Unions was advocating that the first £375 in dividends would be tax exempt. "Taking a rate of 5 per cent or 6 per cent, that implies that a person could have up to £7,500. It is an open invitation to people to put their money in savings which will not come to the attention of the Revenue Commissioners."

He said in case the Opposition did not know, "I am telling them that if that occurs the credit unions will get a competitive advantage because people will automatically put their money there to get this tax exemption. We will be inviting people to evade tax. That is what will happen. It is a fact."

Mr McDowell said the Minister "does not have an open mind on this issue. He has taken up a strong anti-credit union position and a strong pro-bank and pro-building society position."

Fine Gael's finance spokesman, Mr Michael Noonan, criticised the Minister for designing a system in 1998 where there was no cross-checking. "Uniquely there is a liability on credit union depositors to pay the marginal rate of tax, which in many cases is 46 per cent. Everyone else pays at 24 per cent or 20 per cent if they have money elsewhere and that is unfair."

Mr Jimmy Deenihan (FG, Kerry North) referred to the Minister's comment that he had to wait for an EU ruling before dealing with credit union taxation. "One cannot lump credit union taxation in with seaside renewal schemes and other tax incentive schemes."

The Bill passed all stages in the Dail last night and the Government had a majority of 72 votes to 60.