David Mackay said the Scottish Government has used income tax powers “sensibly” as the basic rate was frozen at 20p - but a new intermediate band of 21p will hit those earning £24,000 a year.
The higher and additional rates are also being upped by 1p to 41p and 46p respectively - but Mr Mackay is offsetting increases for higher earners with the introduction of a “Scottish starter rate” of tax at 19p, which will apply to the first £2,000 of taxable income £11,850 and £13,850.
Mr Mackay said the changes would “ensure that no-one earning less than £33,000, which is 70 per cent of all taxpayers, will pay any more than they do now”.
The Finance Secretary said the changes would raise £164 million for public services, and would mean “Scotland is not just the fairest taxed part of the UK but, for the majority of taxpayers, the lowest taxed part of the UK”.
Edinburgh finance convener Alasdair Rankin gave a cautious welcome to the budget, but said it was too early to know exactly how the funding announced for local government would affect the council’s proposed savings.
He said: “The initial impression is it’s a bit better than we thought. We seem to be talking about a flat cash settlement when there might have been an actual reduction.”
But he said officials were still crunching the numbers to work out what it meant for the Capital.
And he said: “We are still going to be under great pressure. It’s just the pressure may be a pound or two less per square inch.
“More generally, I welcome Derek Mackay’s commitments to the pressing issues of homelessness, social care, child poverty and early years provision, all areas rightfully deserving of our attention and investment.”
But Edinburgh Southern Labour MSP Daniel Johnson claimed that the figures showed how Edinburgh would receive less funding for day-to-day spending - down £16m or 2.3 per cent from £712.8m to £696.6m.
He said: “The devil is always in the detail of budgets and many of the grand claims made this year such as on nurseries, public sector pay and social care will force our council to make cuts in other areas to pay for them.
“The impact will be felt by vital services such as schools and the most vulnerable who depend on local services the most.”
During the 2015 Scottish election campaign, the SNP pledged not to increase the basic rate of income tax when powers of rates and bands were devolved to MSPs, and Conservatives accused them of a “direct breach” of that manifesto promise.
Scottish Tory finance spokesman Murdo Fraser, said: “This Nat Tax will hit nearly half of Scottish workers in the pocket.
“That is a tax on aspiration, a punishment for daring to work hard, and a direct breach of the promise made by the SNP in its election manifesto.
“Today, every single SNP member of the Scottish Government has broken that promise to the Scottish people.”
The income tax changes form part of a draft Budget package containing £4 billion of infrastructure spending for the coming financial year, and rising to £20 billion over the lifetime of the parliament.
That includes £600 million over the next four years for high speed broadband for Scotland - with Mr Mackay saying this was part of “an ambitious plan to make superfast broadband available to every home and to every business premises in every part of Scotland by 2021”.
Meanwhile health spending next year will increase by more than £400 million - double the amount that would have been needed for NHS spending to keep pace with inflation and taking the overall total to over £13 billion.
And Mr Mackay said councils would have an increase in “core funding” of £94 million - adding that if authorities increase council tax charges by the maximum of 3 per cent, this would raise a further £77 million “which would secure a real terms increase in local government funding”.
As promised he ended the public sector pay freeze - but only workers with a salary of £30,000 a year or less will see wages rise by 3 per cent, the approximate rate of inflation - with higher earners having lower increases.
Overall the Finance Secretary declared his draft Budget “a comprehensive package of measures designed to protect all that we hold dear”.
He told MSPs: “It provides the investments we need to meet the challenges of today and seize the opportunities of tomorrow. It uses the powers of this Parliament sensibly and in the interests of the country as a whole.”
Scottish Labour leader Richard Leonard claimed he was cutting day to day spending for councils by £135 million in real terms at a time when local government needs an extra £545 million “just to stand still”.
The Labour leader said: “That’s an effective cut of almost £700 million to our lifeline services. These cuts are not numbers only evident on a spreadsheet. They represent lifelines. They represent lives.”
Also in the budget was a pledge for parents in Scotland to be entitled to 1,140 hours of free child care per year by 2020.
Mr Mackay also committed to continuing the small business bonus scheme which will mean 100,000 small firms will not be required to pay rates on premises.
After Philip Hammond cut stamp duty for first time buyers in his budget, 80 per cent of first time owners in Scotland will be exempt from paying the Land and Buildings Transaction Tax.