The Minister for Public Expenditure and Reform Michael McGrath has said the Government will make a revised public sector pay offer to unions.
Talks aimed at reaching a deal will resume at the Workplace Relations Commission in Dublin tomorrow.
In June, a Government offer of a 5% increase over two years was rejected.
Unions and staff associations representing around 350,000 civil and public servants said that pay proposal fell far short of inflation.
Speaking ahead of the resumption of the negotiations, Mr McGrath said "it is the intention of Government to make a revised offer during the talks".
However, he said the proposal "will take us to the limit of what we can afford as a Government, given that we have agreed the overall parameters now of Budget 2023".
He said "there are many other needs across our society and our economy that we will want to make progress on over the months ahead".
Mr McGrath told RTÉ News that while he believes a deal is possible, achieving it will require "flexibility on both sides" and he said "both parties have to be willing to compromise and to move".
"We acknowledge that inflation is hurting many, many people across the country, including public sector workers, private sector workers, and indeed people on fixed incomes as well, but there is a limit to how far the Government can go," he said.
Mr McGrath said he hopes the trade union and staff representative leaders will also "take account of the Government commitment to make a significant move in the Budget to address cost of living pressures."
He said "it can't all be done through pay changes alone."
In the event of a no deal situation, many unions have announced plans to ballot members for industrial action, with others considering their position.
Mr McGrath said such a decision at this time wouldn't be in the interest of the country.
"I don't believe that anyone really thinks that strike action is the way to secure progress for us as a country," he said.
"It's a very challenging time. We acknowledge that, we know that people are under pressure.
"There will be further steps in the Budget that will also be of benefit to public service workers."
