The Government is committed to cutting income tax in the next Budget and to focusing benefits on lower- and middle-income groups, a spokesman has said.
Following controversial comments by the Minister for Defence, Mr Smith, that the scope for tax cuts would have to be re-examined following Tuesday's High Court award of over £50,000 to a soldier, the Government's spokesman last night insisted that, while concern existed that Army compensation claims would "go off the rails", assurances on the tax front would be honoured.
The impact of large awards on budgetary planning has not been discussed by Cabinet, and Government sources said Mr Smith was speaking unilaterally when he said that "it would appear that the scope for tax reductions will have to be re-examined".
Following the £50,575 award to Pte Kevin Hanley on Tuesday, the Minister warned that tax cuts might have to be reassessed in the light of the new formula for assessing damages adopted by the High Court.
However, Mr Oliver Donoghoe, a spokesman for the ICTU, said that irrespective of what happened in relation to Army deafness claims, "it must not interfere with the commitment for substantial tax cuts for the low-paid and middle-income earners". Commitments on taxation would have to be honoured, he added.
Mr Pat Grogan, president of PDFORRA, said the Minister's suggestion of a total requirement of £1 billion to meet Army deafness claims was "outrageous".
"He is scare-mongering because it is the only tack he can use against the soldiers. I do not think he is capable of dealing with the issue," Mr Grogan said.
According to Government sources, the overall cost of the soldiers' claims will depend on three factors: the actual number of claims received, the damages awarded to each claimant and the legal costs involved. "When the level of awards goes up, the number of claims goes up. An increase in an award attracts new claims," one source said.
Officials take the view that efforts to settle cases out of court will have been compromised by the magnitude of the award to Pte Hanley.
Government sources said last night that, even if the lesser figure of £0.5 billion mentioned by Mr Grogan were to materialise, it was still "a massive amount of money and very worrying".
Meanwhile, Mr Smith came under fresh attack from Democratic Left for his comments on tax. The DL leader, Mr Proinsias De Rossa, said tax policy and the provision of funding to meet High Court claims were two distinct items of budgetary arithmetic.
"Additional tax reliefs are not regarded as expenditure for budgetary purposes, and the level of Army deafness compensation will therefore have no impact on the Government's capacity to grant additional tax reliefs," he added.
Fine Gael's defence spokeswoman, Ms Frances Fitzgerald, said she was "astonished" at the Minister's dismissal of consultation as part of the decision-making process on the closure of military installations.