MINI budget? Don't be fooled for one second by the term. Economically and politically, no budget – supplementary or otherwise – has been as important as this one for a generation.

What happens in the first week of April will go a long way towards determining not just whether the government survives but whether Ireland can keep the economic equivalent of the big bad wolf – the International Monetary Fund – from the door.

Nobody expected February's figures for tax revenues to be good. Nobody expected them to be as bad as they were.

After all the cutbacks, tax increases, new levies, street protests, acres of negative newspaper coverage of the past eight months or so, we are finally (and yet again?) approaching crunch time.

The obstacles facing the government are almost too big to comprehend. In the next three weeks, it has to come up with around €4bn between tax increases and spending cuts. The figure is worth repeating: €4bn – That is 40 times the amount of money that the government sought to save when it controversially, and disastrously in political terms, moved to end the automatic right of pensioners to medical cards. It is more than four times what it will save from the public sector pension levy. It is more money than it put in to recapitalise the country's biggest bank, AIB.

It's become a cliché for ministers and other figures around government buildings to say that 'everything is on the table'. But such is the size of the hole in the public finances, it is a cliché that cannot be uttered often enough. Everything is on the table for consideration.

We don't know exactly what will be in Brian Lenihan's supplementary budget, but it's easy to make an educated guess. Income taxes will rise – probably by way of increasing or expanding the existing levies (income and health), rather than hiking the rates, to minimise what are likely to be enormous bureaucratic problems changing the tax system mid-year.

'Old reliables' and carbon taxes

The old reliables – cigarettes, booze and petrol – will take a hammering. Carbon taxes look certain. Child benefit won't be taxed – there isn't enough time to plan its introduction. But there will be further cuts in the early childcare payment.

Some form of third-level fees will be brought back. A property tax won't happen this time around, but its introduction in December may well be flagged. Social welfare rates may not be cut, but the Christmas bonus may not be paid. The once-untouchable National Development Plan will be extensively redrawn, with only labour-intensive projects surviving.

And services will be hit. You simply can't take up to €2bn out of spending without affecting front-line services. The most recent quarterly national household survey showed that, in 2008, while private sector employment fell by 110,000, public sector numbers were, amazingly, up by 10,000. As recently as Friday, one state agency was advertising jobs in the national newspapers. Time will be called on such recruitment. An Bord Snip Nua is understood to be looking at public sector numbers. While there is simply no money for lucrative voluntary redundancies, public sector numbers will have to drop by national wastage and other measures.

Risk of doing more harm than good

Overall, what we can say for sure is that every household in the country, bar none, will be hit, and hit hard.

Economically, the government is playing a dangerous game and it knows it. The genuine fear in government circles – and one that dictated official thinking up to last Tuesday morning – is that huge tax increases and cuts in expenditure could do more harm than good. They could cause such a contraction in the economy that it negates the potential boost to the public finances.

It is a big risk. But, given the slowdown in revenues in February, it's a risk that the government believes it simply has to take. The belief is that uncertainty and concern about the state of the public finances is causing more damage to economic activity than the impact of a cut in spending or higher taxes. But nobody knows that for sure.

Politically, the mini budget is also a massive gamble. Either it will concentrate minds on the mess the country is in or it will result in the collapse of the government. There doesn't appear to be any middle ground. At one level, the government majority in Dáil Eireann looks stable enough. But if ever it is going to be put to the test, this is the time.

The Greens have shown so far that they have the nerve to hang tough when the government is under fire, but the scale of the cutbacks/tax increases this time means the party is in new territory.

"It's inconceivable," says one TD, "that you could have €4bn in tax increases and cuts in spending without having some grenades in the mix."

In the last budget, the government lost Wicklow TD Joe Behan from its ranks and the prospect of another backbencher rebelling cannot be ruled out. The prospect of a general election is unlikely to appeal to any government TD right now, but in three weeks' time they will be under abnormal pressure. Privately, the names of two or three government TDs are being mentioned as potential waverers.

And what of the remaining independent TDs who back the government? Finian McGrath is no longer signed up to back the coalition. Michael Lowry and Jackie Healy-Rae are still there, but both are wily operators and they may begin to wonder where is the gain in aligning with a government that is delivering only bad news.

The one consolation for the government parties is they won't be the only ones under pressure. The opposition parties have to decide how they are going to react to the budget. Will the electorate want the traditional opposition tactic of hammering the government, or will voters expect a more constructive approach, with the opposition putting forward its own ideas about how to come up with €4bn?

If the speculation around Leinster House is to be believed, these questions are causing no little tension in the Fine Gael frontbench. Sources say there is almost a 50-50 split between those who want to keep putting the boot in on a beleaguered government and those who believe the issue is too serious to play politics with and that such an approach could backfire. It was noticeable during Fine Gael's onslaught on the government over the Anglo Irish Bank names that finance spokesman Richard Bruton – who is widely respected in the Dáil for being more measured and constructive – was less than prominent.

Labour too has to make key decisions. The party's response to the economic crisis has been utterly vague. "Where's the beef? Labour has been a friend to everybody," complained one government TD.

This approach – allied to some pretty impressive Dáil performances by Eamon Gilmore and Joan Burton – has been enormously successful for the party, which has seen its poll ratings shoot up to well over 20% – new ground for Labour. But this may not last much longer. Burton received an unmerciful grilling at the hands of Vincent Browne on his nightly TV3 news programme last Wednesday night – with Browne repeatedly asking what Labour would do to fill the gap in the public finances. And the party can expect a lot more of that in the coming weeks.

Traditional Fianna Fáil cuteness

There is a large dollop of traditional Fianna Fáil cuteness in the government's invitation to the opposition parties to submit ideas for the budget. The underlying message from Cowen & Co is clear: 'We've taken all the grief for the last eight months or so; let's see what bright ideas you have, or do you have any?'

In private, Labour figures admit the party will soon have to "show the colour of our money"; they say Gilmore may use the Labour Party conference at the end of March to "put flesh on the bones".

But tricky as these challenges are for the opposition, they are nothing compared to what is facing the government. By opting for a budget, Brian Cowen is drawing a line in the sand.

"This is a defining moment for the government. The week of the mini budget will determine the lifespan of the government. It's going for the full whack and saying 'we stand or fall on this mini budget'. If it falls, it will go into an election saying 'this is what we will do, what will the opposition do?'," said one figure close to government.

If the plan goes well, the government will restore confidence in its ability to manage the public finances and force the opposition to provide details of how it would deliver the necessary pain. In that case, FG and Labour – whether they like it or not – would inevitably be drawn into closer cooperation with the government. However, if the budget goes badly, the government will fall. And while an election campaign would certainly force Fine Gael and Labour to detail their plans, nobody in government believes an election would result in anything other than a Fianna Fáil hammering and a FG/Labour government.

The stakes couldn't be higher, not just for the main parties, but for the country as a whole. The next three weeks will reveal a lot.