Axe-wielders: Taoiseach Brian Cowen and finance minister Brian Lenihan

Everyone will face "extraordinary pain" in the forthcoming budget, union leaders were warned by Department of Finance officials last week.

In talks on how to cut €1.3bn off the €20bn public sector paybill, union leaders were told that the economic situation is "dire" and "won't get better quickly".

Last week, Taoiseach Brian Cowen threw the public service unions a lifeline when he invited them to come up with ideas on how to secure the €1.3bn public service paybill savings through reform measures rather than cutting basic pay.

But following talks, the unions now see this invitation as more of a 'curve ball' than a lifeline in that it forces them on the backfoot.

While Cowen said he would examine any ideas the unions would come up with to avoid cuts in basic pay, the scale of the savings required means that it is next to impossible to come up with realistic alternatives to a straightforward pay cut.

Suggestions that the required pay cut would be reduced to €1bn when account is taken of approximately €300m saved already through the ban on recruitment and the early retirement were dashed by department officials at the talks. They insisted that the cut must be €1.3bn.

While union leaders remained tight-lipped after the talks, privately they are beginning to believe that it may now be impossible to prevent the country's 300,000 public servants being hit by another pay cut.

A €1.3bn reduction would equate to an across the board pay cut of 6.5%.

However, it is understood that the cut will be somewhat less with the balance achieved through minor cuts in overtime, allowances and extra payments, which in the HSE alone cost €1bn this year.

The alternative of a reduction in the working week is considered unlikely but cuts in pensions to retired public servants are on the agenda.

Meanwhile, the Irish Congress of Trade Unions is to go ahead with its protest march on Friday with the Frontline Alliance doing likewise the following Wednesday.

A 24-hour strike planned for 24 November is also likely to go ahead to allow members vent their anger.

"We have to be resolute too and must show we are not a pushover," Siptu president Jack O'Connor warned this weekend.