Exchequer returns for the 12 months to the end of December show tax revenue was just over 3% higher than expected at the start of the year.

Compared with the previous year, 2014 revenues were up more than 9%.

The Government finished the year with tax receipts of €41.3 billion, which is just over €1.2 billion more than it had expected at the start of the year.

All the big four tax headings contributed to the 3.1% excess, notably VAT, which was €413m (3.8%) ahead of expectations.

Income tax was €112m (0.7%) ahead of expectations.

Compared with 2013, the Government took in an extra €3.5bn in tax, which was an increase of 9.2%.

Most of the extra revenue came from income tax, VAT and corporation tax, although there was no increase in the rates for these taxes, indicating a growing economy.

Government spending was 1.9% - or just over €1bn - higher than expected, following a supplementary spending increase last month.

The main overspending occurred in the Department of Health, which accounted for half of the total overspend.

Despite this, departmental spending was €500m lower than in 2013.

The budget deficit was €8.2bn, and improvement of €3.3bn compared with a year earlier.

Department of Finance officials expect the deficit for the year to be around 4% of GDP.

This is well ahead of the target deficit of 5.1% under the EU Stability and Growth Pact rules, however it is slightly higher than the 3.7% estimate given on Budget day.

This is partly due to the supplementary spending approved last month, partly because of the court settlement of the Waterford Crystal pension claim and partly due to the deferral of Irish Water bills by three months.

This has the effect of forcing the Government to take part of the Irish Water spending it had planned to keep off balance sheet, back onto the Government balance sheet.

End December 2014 Exchequer Returns in summary: pic.twitter.com/XGSBIsKMSJ — MerrionStreet.ie (@merrionstreet) January 5, 2015

Minister for Finance Michael Noonan said: "The Exchequer performance highlights the underlying improvement in the Irish economy with increases in income tax and VAT of 9% and 8% respectively, year on year, arising from increases in the number of people at work and more money being spent in the domestic economy.

"Overall, the Exchequer returns show that the tax base continues to grow in line with targets and provides a solid foundation going into 2015.

"Budget 2015 is designed to support this recovery and I would expect that this strong Exchequer performance will continue into 2015."

Mr Noonan told RTÉ’s Six One news that the Government will be able to afford its commitment to taking 500,000 people out of the Universal Social Charge completely, based on today's exchequer figures.

Minister for Public Expenditure and Reform Brendan Howlin this afternoon said: "Spending continued to be managed in line with our fiscal targets.

"On foot of the better than expected tax revenues, Government agreed to provide some additional funding to support the continued delivery of health services.

"Around €100m extra was spent on capital projects around the country, such as the storm damage repairs arising from the severe storms earlier in the year.

"Monies were also directed to stimulus projects announced in 2014. As well as the stimulus monies and storm repairs, Government agreed to approximately €100m additional capital expenditure for 2014 for essential transport and garda fleet replacement."