The Taoiseach has predicted a 10% drop in living standards over the next two years.
Mr Cowen was speaking after another Cabinet meeting to finalise the budget.
He summed up the scale of the country's economic difficulties by saying our living standards today are based on revenue we had six years ago.
The Taoiseach said the Government would try to be fair and was seeking to get the right balance between expenditure cuts and increased taxation.
Mr Cowen added that the model of taxation would have to be adapted to suit the new circumstances.
Speaking before today's meeting, Minister for Education Batt O'Keeffe stressed the the budget was taking shape.
He said the meeting was an important one and that the Government would probably take a look at the overall shape of what it intends to do and then come to final conclusions.
Minister O’Keefe added that the Government is very anxious to achieve a ‘proper balance’ in the budget and to treat people equally across the board.
Minister for Justice Dermot Ahern said this is not like a ‘typical budget’.
He said it is a ‘very difficult’ situation when the country costs €55bn to run and there is only €34bn in tax returns.
The supplementary budget will be announced on 7 April.
