The Government deficit fell to €1.8 billion last year, which corresponds to 0.7 per cent of gross domestic product (GDP) and represents a significant improvement on the €5 billion deficit recorded in 2015.
The Government is on course to balance the books next year before running a budgetary surplus, which will pave the way for the establishment of a rainy day fund in 2019.
New figures from the Central Statistics Office (CSO) show the change in the Government's deficit last year was driven by an increase of 2.8 per cent in government revenues to €72.6 billion combined with a 1.6 per cent decrease in expenditure to €74.4 billion.
The upward trend in tax and social contribution revenue continued in 2016 with increases of €2.1 billion (up 4.2 per cent) in taxes and €0.6 billion (up 5 per cent) in social contributions.
There was also a once-off reimbursement of a prepaid margin (€555 million) on a loan from the European Financial Stability Facility recorded as a capital transfer in 2016.
These increases, however, were partially offset by a reduction in investment income of €0.9 billion (down 32.9 per cent).
Although total government expenditure fell in 2016, the comparison with 2015 is impacted by a once-off capital transfer of €2.1 billion in 2015. If this item is excluded, there would have been an increase of €0.8 billion in other expenditure categories.
There were increases in employee payments (up 2.4 per cent) and the cost of goods and services (up 2.5 per cent ).
Debt service costs, or interest, meanwhile, continued to decrease in 2016 with a reduction of 9.6 per cent.
The figures show central government collected €69.3 billion (95 per cent) of total revenue in 2016. The balance was generated by local government in the form of commercial rates, social housing rents and other transfers.
