The final cost to the Irish state of dealing with the fallout from the Covid-19 pandemic could be as high as €30 billion, according to an analysis by KBC Bank Ireland.
The bank had previously suggested that the fiscal costs could amount to up to €15 billion, much larger than the €6.7 billion that initial official estimates have suggested.
"But it now seems likely that "respite" measures and the broader shortfall in in tax revenues could readily exceed this figure," chief economist Austin Hughes said in a research note today.
"Our sense is that "reboot" measures on a scale likely to ensure a strong and speedy rebound could amount to a further €10-15 billion, implying the overall fiscal impact for Ireland of Covid-19 could be comfortably in excess of 10% of GDP," the economist said.
Mr Hughes said the uncertainty does make it next to impossible to assess the budget costs at present.
But he said the crisis does make a sharp economic downturn inevitable and aggressive policy action can make it short-lived.
"What is clear is that Covid-19 is now leading to a sudden and severe downturn in economic activity in Ireland and elsewhere that should give way to a substantial and hopefully speedy turnaround," he said.
"Importantly, the scale and speed of that turnaround are critically dependent on the nature and timing of economic policy actions taken," he claimed, with a policy stimulus needed to reboot the economy.
The consequence of that, however, will be a much larger deficit and debt, Mr Hughes predicted.
But the Irish economy also has an exceptional capacity to ease the burden of debt through strong economic growth, he noted.
"Ireland's capacity for credible debt reduction together with the actions of the European Central Bank as well as financial markets appreciation of current exceptional circumstances have markedly reduced government borrowing costs," he said.
"As a result, additional borrowing amounting to 10% of GDP would only boost annual debt service costs by around €150m per annum, an almost negligible sum in the context of the scale of the current crisis," he stated.
Borrowing costs could be even lower, he noted, if Euro Area leaders agreed to issue collective debt for the bloc.
The economist said it is not particularly useful to think of the current downturn as a recession as what is happening is not the consequence of a normal cyclical event that can be contained by the use of automatic stabilisers such as welfare and tax flows.
He also noted that the current circumstances are notably different to 2008 when it comes to policy pressures as there is none coming from markets, Brussels or Frankfurt to implement austerity measures.
The activation of the "general escape"’ clause of the EU fiscal rules, effectively suspends any EU constraint on Irish budget policy for 2020 and probably for 2021 and underlines the widespread recognition of the exceptional scale of the current crisis, he said.
"In the current climate, a fiscal stance that turns towards prioritising adjustment in the public finances over improvements in activity and employment is likely to compound rather than cure economic problems," he said.
"Austerity is not an antidote to a problem that has nothing to do with imbalances in the Irish or other economies." he stated.
Mr Hughes said while the near-term focus will be on re-igniting the Irish economy, the actions required to do this should have lasting positive effects.
"A marked increase in spare capacity in the Irish economy could allow scope to make a significant start to address longstanding problems in housing and other areas of infrastructure as well as adopting a range of green initiatives. In this way, policy could both revitalise short term growth and raise long term growth potential," he suggested.