The entire country joined Dublin and Donegal earlier this week on level 3 of the Government's Living with Covid-19 plan and as a result the hospitality sector has largely had to shut down once again.
As the Irish Examiner reports, Mr Varadkar was speaking on Newstalk's Down to Business with Bobby Kerr, where he said the Government does not take the decision to increase restrictions lightly.
"Just in the last week, 60,000 people went back on the unemployment payment, laid off for the second time in a year.
"No government wants to be making those kinds of decisions and we don't make them lightly.
"We certainly won't go to level 4 or level 5 unless we believe it's necessary."
Mr Varadkar said there will be a time in the future when a decision will have to be made as to what businesses are viable and which are not.
"I still hope and believe that with the development of a vaccine, with improvements in testing and particularly rapid testing and improvements in treatments and prophylaxis that we will get to a point - hopefully, by the middle of next year - where life returns to something resembling what it used to be like and that those businesses get a chance to survive," he said.
Responding to complaints this week over traffic delays due to the introduction of Garda checkpoints, Mr Varadkar said:
"The level of traffic that we see on our roads is indicative of the fact that a lot of people are not following the restrictions."
Speaking about next week's budget, Mr Varadkar said the Government will not be in a position to compensate businesses for all the money they have lost due to the pandemic but will try to do enough so the vast majority can survive through the winter.
The government is considering cutting the VAT rate for the hospitality industry ahead of Budget 2021.
The struggling sector has called for it to be reduced from 13 per cent to 9 per cent to help businesses during the pandemic. Mr Varadkar said it is among the proposals being looked at.
