Smith says tax rise may be needed to pay the bill

A "very significant hike" in taxes may be necessary to meet the cost of Army deafness claims, the Minister for Defence, Mr Smith, has told the claimants' solicitors.

The Minister's position, as outlined in a letter to the solicitors, was that a bill of more than £300 million is expected for existing Army deafness cases and the "most worrying thing" was that that figure was not finite. An ultimate figure of £1.5 billion had been suggested by the Secretary of the Department of Defence.

The solicitors were told the Minister believed that, as more than 150,000 people had served at some time with the Defence Forces or the FCA, "a very significant hike" in taxes would be necessary in a "worst case scenario" to meet the situation.

In the same document, the solicitors were informed of the Minister for Finance's view that "given the Government's commitment to keeping expenditure within specified limits . . . funds which could otherwise be used for education, health, housing or the re-equipping of the Defence Forces will have to be used to meet the cost of these claims".

Sent from the Chief State Solicitor's office to solicitors acting for the soldier claimants, the letter was referred to in the High Court during the hearing of the Minister's application for an adjournment of the army cases. In the letter dated April 16th, Mr Brendan Counihan, principal solicitor, outlined the arguments in favour of the Minister's application for an adjournment. He said Mr Smith's position was that more than 12,000 claims had been received by the Department of Defence for damage to hearing arising from service in the Defence Forces. Of those, 1,431 had been settled, awards had been made in 91 cases and 61 cases had been dismissed or withdrawn by the plaintiff.

"Total expenditure to date is £36.4 million on awards and settlements, with a further £8.5 million on plaintiffs' costs accrued to date," the letter stated.

Plaintiffs' costs represented some 30 per cent of the award or settlement while the State's costs as defendant represented between 15 and 20 per cent.

On a conservative estimate of a £20,000 award per case, projected expenditure on cases at hand was £210 million, plus a further £105 million for costs, making a total of £315 million.

"The most worrying aspect of the problem is that this bill is not finite," the letter stated. There were an estimated 150,000 people alive who had served with the Defence Forces or the FCA and if all or many of those were to claim compensation, the final bill would amount to billions of pounds.

Mr Counihan said the Minister's position was that no government department has ever faced such an enormous bill and in a worst case scenario a very significant rise in taxes would be necessary to meet the situation. "Even if the claims were not to grow beyond 20,000 in number, which is unlikely, the tax increase or alternatively the curtailment of existing services would be dramatic."

The law applicable to the cases provided authority for the proposition that a person might be compensated for a hearing impairment or loss despite it not registering as a handicap on any internationally recognised scale.

An expert group had presented a report - the Green Book - on a method of calculating handicap or disability arising from a hearing loss.

The Minister believed this required close study to see how it might affect Government policy on handling Army hearing loss litigation, to ensure those with genuine handicap were fairly compensated while at the same time ensuring that the taxpayer was not exposed to unnecessary demands.

The Government had also set in train, in light of court decisions on Army cases, an examination of the legislative options available to deal with the problem. An interdepartmental committee was finalising a report and a range of options would be put to the Government as soon as possible. However, the legal issues involved were very complex and the Government was reluctant to act hastily.

For those reasons, the Minister was seeking the adjournment "to enable a period of reflection and consideration of available options and the preparation and drafting of suitable and appropriate legislation".

The letter said the Minister for Health and Children believed that the composition of the working group of hearing experts was determined by their expertise and eminence, as well as the desirability of a geographical spread, and that the group was "completely independent" in its deliberations.

The Minister for Finance was very concerned about the impact of the hearing loss claims on public expenditure, the letter continued. Provision of £80 million had been made in the 1998 Defence vote to meet the costs of awards and settlements, while £90 million was included for 1999 and 2000 in the Department's multi-annual projections. Those projections might have to be revised, depending on the number of claims being processed by the courts.

The Secretary of the Department of Defence had suggested that up to 50,000 claims could be received and this would result in costs of up to £1.5 billion.

To put the figures in context, the Minister for Finance noted that the total costs of the hepatitis C cases may reach £330 million and the new Tallaght hospital had so far cost £130 million. Expenditure on national roads would account for £263 million this year, while provision for childcare was £86 million and £39 million was allocated for building and renovating national schools.

The projected hearing loss figure represented two thirds of the amount needed to pay the interest on the national debt and was 10 per cent of net Exchequer expenditure this year.