He denied his plans represented an electoral gamble, saying the country had "run out of money" and tough action was required.
"Whoever wins the election is going to have to take these choices," Mr Osborne told the BBC's Today programme.
"Anyone who tells you otherwise is frankly lying to you."
The "real choices" in British politics were how to protect jobs while getting the public finances under control, he said.
His proposed public sector pay freeze in 2011 - which exempts the frontline military and anyone earning less than £18,000 a year - goes further than the one announced by Labour on Monday, which will be restricted to GPs, judges and other high earners.
'Small shopping list'
Other cash-saving measures include reducing Whitehall costs by a third, axing child trust funds and cutting middle income tax credits - a sign, the Tories say, that the better-off must take their share of pain.
Mr Osborne also confirmed plans to bring forward a rise in the age at which men can claim a state pension to 66 from 2016.
Robert Chote, the director of the Institute for Fiscal Studies, said the measures outlined by Mr Osborne were just a "small shopping list" and much more would be needed to address the gaps in public finances.
He added that "£7bn makes some contribution to that, but it's only a small part of the whole".
Public sector unions said there could be industrial action if either the government's or the Conservatives' plans for a pay freeze came into force.
Mark Serwotka, leader of the Public and Commercial Services Union, said: "This is a scandalous attempt by both the Conservatives and the government to outmanoeuvre one another on public sector pay and job cuts. It is playing politics with people's lives and the services we all rely on."
And Unison leader Dave Prentis said: "Millions of public sector workers will be left out in the cold by this pay freeze. Other staff will have to pay with job and service cuts, while bankers and tax cheats escape with a slapped wrist."
For the government, Chief Secretary to the Treasury Liam Byrne said Mr Osborne's plans failed to match the government's pledge to halve the deficit in four years.
"He said 'we're all in this together', but then attacked the mainstream middle while defending a tax cut for the richest families," Mr Byrne said.
Liberal Democrat treasury spokesman Vince Cable called the pay freeze proposals "Lib Dem Lite".
This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.