* Government to get finances under control by 2013
* Sees budget deficit of 10.75 pct of GDP in 2009
* Sees hefty spending cuts in 2010, 2011
* Creates agency to take over banks' bad debts (Adds quotes, detail)
By Carmel Crimmins and Andras Gergely
DUBLIN, April 7 (Reuters) - Ireland vowed on Tuesday to restore its economic fortunes with years of belt-tightening and tax hikes to allay investor concerns that the former "Celtic Tiger" economy is a threat to European stability.
After three rushed attempts in nine months to tackle the worst public finances in Europe, Dublin is in the last chance saloon to deal with a fiscal crisis that has cast doubts about how well the 10-year-old euro bloc is equipped to deal with such strains.
Finance Minister Brian Lenihan told a packed parliament that his emergency budget, the second in six months, was the final word on 2009, and said the medium-term proposals, with particularly harsh spending cuts, would ensure Ireland would get its deficit in line with European Union rules by 2010.
"We know it's a big ask," Lenihan said. "But we will spread the burden as fairly and as evenly as we can.
"Until we show that we can put our own house in order, we cannot expect those who have invested here and who might invest here in the future to have confidence in us."
Lenihan outlined an eye-catching 10.6 billion euros in spending cuts for 2010-2011 and forecast an additional 3.25 billion euros from taxation in that period.
The details of the 2010-11 measures were still being worked on but a cut in public sector pay seemed likely.
Lenihan also unveiled a proposal for cleansing the banking sector of up to 90 billion euros in bad debts. [ID:nL7953480]
Analysts said the measures did not provide enough clarity to financial markets and there was still a threat of further credit rating downgrades following Standard & Poor's cut to Ireland's prized AAA rating last month.
"Setting out a road map to where you want to be in five years time and putting in targeted figures is fine, but without fleshing it out, specifically in relation to where we are likely to see spending cuts, makes it very difficult to judge whether these targets are achievable or not," said Alan McQuaid, chief economist with Bloxham Stockbrokers. [ID:nL7679723]
The cost of protecting Irish government debt against default rose and the premium on Irish government bond yields over German debt remained stable on Tuesday. [ID:nL714994]
The main Irish stock market <.ISEQ> closed down 1.21 percent.
VERY SEVERE
For 2009, Lenihan said he would squeeze 1.5 billion euros in spending cuts and generate 1.8 billion euros in additional revenues from Tuesday's measures, leaving Ireland with a budget deficit equal to 10.75 percent of gross domestic product, far above an original goal of 9.5 percent and still the worst in Europe.
Without the measures, Dublin had said the shortfall would hit 12.75 percent of GDP.
Lenihan said the severity of the current recession -- he estimated gross national product would contract by a record 8 percent -- and time prevented him from wielding the axe too deeply this year.
The government's unpopularity was another factor. Lenihan said squeezing more out of this year's budget would have entailed public sector pay cuts and a reduction in social welfare payments, politically explosive decisions.
Income tax levies were, however, doubled, capital gains taxes were hiked and Lenihan signalled the tax base would be further broadened in 2010 and 2011. For highlights [ID:nL7933142]
The government, which has been in power for 12 years, is struggling to convince voters that it can turn around the economy amid widespread dissatisfaction over its handling of the finances and a string of banking scandals.
Some analysts, however, said Tuesday's measures would go some way toward convincing overseas' fund managers.
"A lot of the budget was targeted at international investors and markets and the government was very cognisant they had to take serious action and they have taken serious action," said Theresa Reidy, a lecturer in government at University College Cork. "It has generated a very severe budget." (Additional reporting by Padraic Halpin; Editing by Andy Bruce and Leslie Adler)