Spain's December income surge may weigh on 2013 deficit

* Spain deficit reduced by income boost, rebate drop in December

* Madrid seen facing uphill battle in 2013 deficit reduction

MADRID, March 8 (Reuters) - A surge in December tax revenues helped Spain lower its 2012 deficit but frontloading receipts and delaying rebates means keeping its fiscal plan on track through 2013 has not got any easier.

Madrid is under intense pressure to show investors it can control its budget shortfall and has enacted sharp spending cuts and tax hikes even though austerity will delay economic recovery.

Spain's 2012 public deficit came in at 6.7 percent of gross domestic product, down from 8.9 percent in 2011. The figure was better than expected, helping soothe markets.

The premium investors pay to hold Spanish over German 10-year bonds fell on Friday to its lowest level since early January at around 334 basis points, half what it was last summer at the peak of concerns over Spain's finances.

The deficit numbers were helped by a more than 4-billion-euro jump in corporate and sales tax income in December from a year earlier while spending on tax rebates dropped by 3 billion euros from the same month in 2011.

The government says the tax revenue rise was due to hikes through the year, particularly a 3 percentage point rise in value-added tax in September, and companies racing to pay what they owed before the end of 2012.

The drop in tax rebates was due to a change in the payment calendar, the recession's effect on companies' taxable base and a more rigorous inspection process as part of a ramped up fight against fraud.

Treasury Minister Cristobal Montoro says Spain will not to implement any new budget measures this year since some steps, such as the VAT hike, will carry through into 2013 and keep deficit reduction on track. He said on Wednesday that any revision to the 2012 figure would be downwards.

His opponents disagree.

"Lower tax rebates in 2012 will increase this year's deficit, making it impossible to meet its target without new budget cuts," Alvaro Anchuelo, member of parliament for the UPyD party said on Friday.

While it is difficult to pinpoint exactly how much the measures helped reduce the public shortfall, analysts said it was clear a lot of the annual deficit reduction had been squeezed in to December.

"With markets as distorted as they are right now, and all focus on budgetary degradation, it's clear there are very strong incentives to produce good public accounts data," said a head economist at a top international bank who did not wish to speak on the record.

While the economy shrank at its fastest pace since 2009 at the end of 2012, VAT receipts rose 176 percent year-on-year in December and corporate tax income rose 112 percent.

On the spending side, a cancellation of an annual Christmas payment for civil servants, 1/14th of their annual wages, helped bring down spending on public sector wages by 17.4 percent in December.

A one-time tax amnesty for Spaniards to bring home money they had deposited in tax havens abroad, boosted coffers by 1.2 billion euros during the month.

Meanwhile, corporate tax rebates in December were down 91.6 percent from the same month a year earlier, rebates for individual taxpayers dropped 53.9 percent and rebates on VAT fell 56.8 percent.

Economists at two large multinational banks, who asked not to be named, said corporate clients had been encouraged to report tax income in 2012 rather than leave it until this year while tax rebates were paid in the first few days of 2013.

NO NEW MEASURES

These movements could come at the cost of the 2013 deficit efforts because income that would have been booked this year was booked last year and costs that could have been paid in 2012 will be paid in 2013.

Even though that will amount to only a few tenths of a percent of GDP, with Spain under pressure to keep trimming the deficit, and no additional budget measures planned this year, every bit counts.

The European Union has set Madrid a deficit target of 4.5 percent of GDP this year. The Spanish government has already made clear it will be seeking some leeway.

"While the central government accounts are positive, the risk for 2013 persists due to the temporal nature of some of the measures taken in 2012, for example the elimination of public worker's extra payment, a reduction in rebates and the increase in forwarded tax payments," Spanish bank BBVA said in a study of the breakdown published by the tax office.

EU Economic and Monetary Affairs Commissioner Olli Rehn said Spain has done what is required in 2012 and 2013, and is likely to give Madrid more time to reduce the deficit to 3 percent, the current 2014 goal.

The government is hoping an eventual return to growth will rebalance the books down the line, if not this year, then next.

But with most economists dismissing government forecasts of a 0.5 percent contraction this year - most see the economy dropping by around 1.4 percent in 2013 - it is likely the deficit will continue to be a problem for Spain for some years to come.

(Editing by Fiona Ortiz/Mike Peacock)