Public service salaries will cost the state R30 billion, Public Service Minister Lindiwe Sisulu said on Tuesday.
"This is R1.8bn over what we have budgeted for," she told reporters in Pretoria.
"We will need to go into our reserves."
Sisulu said the government had offered public service workers a nine percent increase made up of a 6.5 percent salary increase and a 2.5 percent increase in benefits.
Labour was demanding an eight percent salary increase.
Negotiations between the two broke down last week when the government made its final offer. The unions have declared a wage dispute.
Sisulu said Treasury had budgeted for only a five percent increase.
"Government [is] in a situation where nine percent is way above what it has budgeted for," she said.
Salary increases that were higher than the rate of inflation would be unsustainable.
Sisulu said the government was inviting labour back to the negotiating table.
"They will be surprised that I have no horns and there is no devil in me," Sisulu told reporters in Pretoria.
"It is in their interest that we find an amicable solution."
Sisulu denied reports that she was a "union basher".
This related to her stance on unions within the SA National Defence Force.
"As far as the ruling party [ANC] are concerned, and the policy of the defence force, there is no place for unions in the defence force," said Sisulu.
"There is no place in the defence force for ill-discipline."
She was referring to striking defence force officers who went on the rampage at the Union Buildings in Pretoria in 2009.
Sisulu was moved from defence to public service by President Jacob Zuma during a Cabinet reshuffle last week.
She said that, on average, seven months a year were spent negotiating with public service workers.
"I don't believe this is right."
She said a service charter was needed which would deal with, among other things, salary increases based on performance.
The charter would be necessary for the government to function properly.
"We cannot go on like this with a wage bill that is unaffordable.
"After a series of negotiations we are at a point where we can influence and talk to labour so that we can find each other," said Sisulu.