Mounting jobless figures and rising government deficits are now so intimately intertwined, it is little surprise the government is facing a crisis in controlling the national finances.

With an accelerating slump for the economy and for government revenues, 79,900 more people, equivalent to the population of Galway city, have been added to the live register since Christmas.

But the scale of the crisis is probably still being underestimated. The amount of extra taxes the government will need to raise in order to plug its gaping deficits will only be known when unemployment stops rising. Unfortunately, the forecasts for peak unemployment are becoming ever higher and scarier. Ireland's unemployment queues are now officially among the longest in Europe: only Spain and Croatia have recorded significantly higher jobless rates in the early part of this year.

After last week's surge in the live register count to 371,271, Ulster Bank economist Lynsey Clemenger has forecast that unemployment will peak at 16% at the end of next year. That 16% rate translates into a live register count of 550,000, meaning that 179,000 more people will sign on the live register in the next 20 months.

On the less frequently published quarterly national household survey, which excludes people working part-time or casual jobs from the jobless count, her unemployment forecast suggests that about 340,000 people will be without any sort of employment next year.

The live register and quarterly surveys are pointing in the same disheartening direction: both show a large rise in the numbers of people who have lost their full-time and part-time and casual jobs.

"Something funny happened in the quarterly national household survey in the last two quarters. They were revised upwards," said Clemenger. "Our explanation is to do with more permanent unemployment because of the severity of the downturn."

Fears are growing that the live register numbers will surge as we head into the summer months. Traditionally, the live register count increases in the early summer because part-time teachers and other school staff sign on for benefits, and the numbers then fall back in September. But at the end of last summer the live register count had kept on increasing as the economy shed jobs.

Some senior labour market experts believe that the figures will peak at a higher level than even that seen during the bleak 1980s. "The worst scenario is an unemployment rate of 20% next year," said a senior economist working with a leading public organisation, who warned that the monthly deterioration in the exchequer finances has distracted from a proper analysis of the quarterly household and live register jobless counts.

"Why could it go so high? There is a dance macabre going on at the moment. There was a mega boom. Now there could be a mega bust," the economist said, adding that his best guess was that unemployment would peak at 18% next year. Because of the increase in the population and work force since the 1980s, that figure suggests record numbers will be without a job here in 2010.

Rising unemployment delivers a double blow to the national finances. The first costly expense comes from jobseekers benefit and allowance, and income support paid to the unemployed. Secondly, there are the hidden costs, as the government forgoes income and other employee and employer taxes which it previously collected from those in work.

Each person joining the live register costs the government €16,500 a year, from unemployment and income support and lost taxes, private sector economists estimate. Based on these figures, the 16,834 additions to the live register in March will cost the government, in lost taxes and other additional welfare costs, about €278m in a full year.

But the senior public sector economist believes these figures underestimate the true costs. He estimates that the average annual welfare jobless cost of €11,500 per person rises to over €16,000, when the secondary costs of payments for the unemployed person's dependants are accounted for. Then, the overall annual cost to the exchequer rises to €20,000 per person when the lost taxes to the government are included. These figures suggest that the public deficit widened by €337m due to the increase in the live register in March alone.

Furthermore, the higher the unemployment rate goes, the longer it will take to bring it back down.

And there are other serious implications from rising unemployment statistics for the Irish banks and the government's finances. More than a year ago, overseas banking analysts were first to predict the ticking time tomb from souring commercial and property loans, even as Irish bankers continued to insist that the crisis was one of liquidity, and not because of bad lending decisions.

In recent times, banks appear to have stress-tested their loan books for an average annual unemployment rate of 13%, which translates into a peak unemployment rate of 15%.

If unemployment instead peaks at 18%, a new round of problematic consumer and mortgage loans will likely arise for the banks.

And the vicious circle of rising social costs and less economic activity and lower government revenues could start all over again.