Credit Unions Tax Free Status

Should Irish Credit Unions continue to enjoy tax-free status?

Taxation status of credit union is rooted in their societal purpose rather than ownership structure. This purpose is the provision of (a) a safe place to save and (b) personal credit to an underserved population. The key question arising is do credit unions continue to fulfil this purpose to the extent that tax-free status should continue?

Today this societal purpose is no longer unique and is largely irrelevant save for those who are socially excluded which amounts to less than 200,000 of an adult population of 2.7m. Millions of people have long had access to basic banking services (savings, loans and transactional accounts).

Credit unions however only provide for savings and loans. They do not provide for transactional accounts nor do they provide 24/7 access to cash accounts or participate in the national money transmission system.

Credit unionists argue they provide social finance. But their argument is based on defining “social finance” as lending to the individual. They claim this amounts to €700m or about 10% of total credit union lending. This figure has never been independently verified and is likely to be a guesstimate. The figure, provided by the ILCU, seems quite odd as MABS says it has c18,000 clients with about €68m in loans out.

Assuming people in this ILCU defined category borrow smaller amounts of money, say up to €5000, then the €700m equates to c140,000 adult borrowers which is about 4.83% of credit union membership. This also amounts to 70% of the defined socially excluded population- makes one wonder who the moneylenders are lending to. Of course people borrow from more than one source, including taxed entities.

Should tax free status be afforded on the basis that only 10% of the loan book is “social finance” by the ILCU definition? Should the status continue if less than 5% of credit union members are social finance borrowers by ILCU definition?

The case for tax free status collapses altogether with employer credit unions, most of which are either state or semi-state employee based. This population have secure pensionable employment and enjoy reasonable levels of income. There is no argument that appears to support their continuing tax free status.

Still again hundreds of credit unions lend less than 40% of savings with many as low as 20%. Their social purpose is more the provision of savings accounts and some over the counter bill payment services – of course many open only a few evenings a week which calls into question service convenience and availability. Should tax free status be afforded these credit unions simply because they provide non-unique local services?

The largest and most successful credit unions are located in what have become solidly middle class common bond areas. It is remarkable how few credit unions exist within socially deprived areas. It is also quite remarkable that many credit unions have created “social fund reserves” that remain unused.

Many would argue the Tiger economy has solved for the purpose of credit unions. They may be right but only if the purpose remains rooted in credit unionists ill-conceived arguments. If middle class credit unionists do not define and deliver on a societal purpose for a modern Ireland then tax free status may become a thing of no value at all.