It says that that average pay in the public sector grew by 2.8% in 2009 yet fell by 0.9% in the private sector.
The CBI argues in its document Time for action: reforming public services and balancing the budget that re-engineering health and social care to treat patients in their homes and in the community could save £8 billion by 2015/16.
It also calls for greater competition in public services to lower costs.
Richard Lambert, CBI director-general, said: ‘We have a new government with a determination to get a grip on the public finances and the political will to do it. We need to see a detailed plan for achieving this in the Budget.
‘Experience suggests that the best way of bringing down a substantial deficit without damaging growth is through spending restraint rather than raising taxes.'
The emergency Budget will take place on 22 June.
Editor's blog: What the NHS will be like in our new Con-Dem nation