MADRID, APRIL 24 - Spain's government said it was on course to meet tough deficit-cutting targets designed to convince financial markets its finances are in order, even though the central government deficit rose in the first quarter of 2012.

The country's borrowing costs have surged as investors worry that its debt-laden banks and consumers and its shrinking economy could eventually make it impossible for the government to manage its finances without international help.

Treasure Minister Cristobal Montoro on Tuesday told parliament the central government's budget gap was 0.83 percent of gross domestic product, which compares with 0.64 percent of GDP for January-March 2011 and an official target of 3.5 percent for 2012 as a whole.

This means it is in line with achieving the targets which the government has set in its budget, Montoro said. This is the most austere budget in the democratic era (since 1978) but also the most realistic budget.

At a news conference later in the day, Secretary of State for the Budget Marta Fernandez said Montoro's estimate had used comparable data.

Including one-off items, she said the central government-s budget gap for the first quarter was 19.696 billion euros ($26.005 billion), or 1.85 percent of GDP, up from 1.06 percent a year earlier.

The government has promised the European Union it will cut its total budget deficit, including the social security system and regional government accounts, back to 5.3 percent of GDP this year from 8.5 percent in 2011.

This will entail spending cuts of more than 27 billion euros which are unpopular in a country where almost one-quarter of the working population is unemployed, and which economists warn will stifle an economy already in recession.

The situation is very difficult, which is why we are forced to take measures and decisions we know the Spanish people positively do not like, but these measures and the budget have the sole aim of overcoming just that tough situation, prime Minister Mariano Rajoy told journalists.

Separately, European Central Bank policymaker Jose Manuel Gonzalez-Paramo said Spain needs a reform plan which looks well beyond this year to convince nervous debt markets it can turn around its battered economy. ($1 = 0.7574 euros)

(Reporting by Manuel Ruiz and Andres Gonzalez; Writing by Martin Roberts; editing by Ron Askew)