Tánaiste Brian Cowen has warned that it would be futile and self defeating to respond to externally generated price increases by simply increasing pay.
The Minister for Finance also warned that he was concerned at the very significant payments being made to senior business people.
Mr Cowen said he was worried about the signal these payments send out to the majority of workers in relation to two key principles of social partnership - fairness and equity.
The Tánaiste stressed that excessive pay increases would add domestic price increases to imported ones, would fail to improve living standards, lead to widespread job losses and leave those without jobs much worse off than before.
Mr Cowen was speaking as the next round of national pay talks is due to get under way tomorrow.
Employers and unions are already at odds over the issue of pay.
The ICTU says workers will not accept pay increases below inflation and employers warn that the country cannot afford large increases that would damage competitiveness and cost jobs.
On public sector pay, Mr Cowen said that each 1% increase in the public sector pay bill costs just under €200m a year.
He warned that public service pay costs must not result in a shortfall of resources for other key priorities.
He also said it was essential that all those who work in the public service must improve their productivity and continue to deliver the best possible quality services to the public.
Setting out the Government's position, Mr Cowen said that the key to maintaining Ireland's competitive position was to raise the level of productivity and to keep costs down.
He said that whatever deal might emerge from the pay talks must work for all sides, and must address the key issues of productivity, competitiveness and inflation.
He said the Government would continue to invest in training and up-skilling the workforce, as well as physical infrastructure.
