SANTIAGO (Reuters) - Chilean President Sebastian Pinera unveiled an education-heavy 2013 budget bill on Sunday, as he seeks to improve the right's social credentials before municipal elections in October and next year's presidential election.

The budget bill proposes increasing public spending by roughly 5 percent next year, Finance Minister Felipe Larrain said as he submitted the proposal to Congress. The measure would bring total spending to around $63 billion, a record high.

Pinera is under pressure to increase spending after more than a year of massive marches over what protesters charge is a stratified and costly education system.

"Our citizens are rightly every day more conscious of their rights and demand solutions to their problems," Pinera, who cannot run for consecutive terms, said in a national address.

"But we can't fall for the populist cries ... Amid this world in crisis, the Chilean economy is healthy, continues to grow and generate jobs and opportunities. We have to keep advancing."

Chile, the world's largest copper producer, is seen growing around 4.7 percent this year, boosted by its lynchpin mining industry, robust domestic demand and its forestry, salmon and wine exports.

While the Andean country has long been held up as an economic model in Latin America, it has the highest income inequality among OECD countries and the rate has barely fallen since 1990, according to a report by the body last year.

Billionaire Pinera is Chile's most unpopular leader since General Augusto Pinochet's dictatorship ended in 1990, although polls also show the center-left opposition bloc, the Concertacion, as unpopular.

Pinera's Economy, Public Works and Defense ministers are seen as potential presidential candidates in next year's presidential race. The left is pinning its hopes on a comeback by popular former president Michelle Bachelet, who has not said whether she will run.

The 2013 budget puts education spending at a record-high $12.8 billion, Pinera said. But the move is set to fall short in the eyes of many student groups, which are seeking a massive revamp of the system including free schooling for all.

"The president insists in maintaining the fallacy that parents have the right to choose (in terms of education). The ones who choose in Chile are only the ones who have money," student leader Gabriel Boric said on Twitter after the speech.

Pinera also said the bill puts a special emphasis on combating crime and drug trafficking. Congress has 60 days to approve or reject the bill.

(Reporting by Alexandra Ulmer and Antonio de la Jara; Writing by Alexandra Ulmer; editing by Christopher Wilson)