Cuts in government spending, incentives for private-sector investment and wages pegged below the inflation index are major priorities of the midterm budget unveiled last week by Spain's socialist government.

But Finance Minister Miguel Boyer is fond of telling associates: "Spending more than you earn is not the mark of a socialist, it's the mark of an incompetent."

At the cost of a stiff austerity recipe, Spain is gearing into shape for entry into the European Common Market scheduled for Jan. 1, 1986. This has involved a drastic streamlining of money-losing public-sector industries, a tight hold on domestic consumption and a rise in the unemployment rate to the point where one in five of Spain's working population is jobless, according to government statistics.

The policy is starting to show rewards, however: 1984 has seen record rises in Spain's gold and currency reserves, a spectacular exports drive and a heightened interest by foreign investors in the stock of Spanish enterprises.

And last week, a social pact was signed by the administration, the employers' confederation and the socialist trade union that lays down consensus guidelines on economic policy that will be in operation for the next two years.

Boyer's 1985 budget, the second year-long economic program he has presented to the Madrid parliament since the socialists took office at the end of 1982, retains what leftist critics claim are "monetarist" and "Thatcherite" (after the British prime minister) trends that were evident in the 1984 budget he presented a year ago.

The chief success claimed by Boyer this year was a reduction in the deficit from 6 to 5.5 percent of gross domestic product; the goal for 1985 is to reduce it to 5 percent of GDP.

Inflation is expected to stand at 9 percent this year, compared with 12.2 percent for 1983, and this would be the first time in a decade that Spain has had single-digit inflation.

As expected, there was zero growth in domestic demand this year, but Boyer and his economic team forecast growth of 1.3 percent next year. The GDP is expected to increase by 3 percent in 1985 against 2.5 percent this year.

Spain also is expected to break even next year on its balance of payments for the first time since 1979.

Since the start of the decade -- before the socialists came to power -- Spaniards have shown an unwillingness to invest; foreign capital has taken an increasingly active role in the Spanish economy. The single most important economic event this year, for example, was the announcement in June of a joint venture between American Telephone and Telegraph and the Spanish national telephone company to establish a major semiconductor manufacturing plant here.

Foreign investors have shown growing interest in Spain, especially with a view to the Common Market entry, and foreign capital has been the chief spur behind a surge by the Madrid stock exchange.

Boyer recognizes the continued loss of jobs as the major failure of the economy and the social pact signed last week called for the creation of a national fund, financed by the administration and channeled mainly toward public works, that aims at creating up to 190,000 jobs.