Personal tax rate thresholds will be raised 6.12 per cent on 1 April 2008 under a Budget 2005 commitment to inflation proof incomes, Finance Minister Michael Cullen said today.

The decision will cost the government an estimated $68 million in 2007-08 and $360 million in 2008-09.

"This means that in future taxpayers will pay more tax only if their incomes rise in real terms," Dr Cullen said. "The adjustments will take place every three years beginning on 1 April, 2008."

"To provide greater certainty and administrative ease, we have decided to raise the thresholds by a uniform 2 per cent each year – the mid-point of the Reserve Bank’s price stability target range. Compounded over three years, this produces an increase of 6.12 per cent," Dr Cullen said.

As a result of the changes, taxpayers who earn more than $10,081 will pay $35 less tax each year. Those earning more than $40,324 will pay $314 less and those earning more than $63,672 will pay $534 less.

Legislation to implement the indexation regime will be introduced next year.

Changes to tax thresholds at 1 April 2008