A Liberal backbencher fears his government may be giving a "leg-up" to organised criminals by continuing to bump up taxes on tobacco.
Outspoken MP Craig Kelly told parliament on Tuesday the retail price of a packet of cigarettes is headed toward $40 in Australia, yet is being sold wholesale in Asia for the equivalent of $1.
He agrees the extra revenue will help repair the budget and that the high cost could deter people from smoking.
"But my concern that what will happen, is we'll be basically creating prohibition by price," Mr Kelly said.
"The risk is that we're going to turbocharge the illicit and underground market, we're going to turbocharge smuggling, we're going to turbocharge black market cigarettes and we'll be giving a leg up to organised crime."
About 14 per cent of every cigarette sold in Australia is from an illegal or counterfeit source that avoids customs tariffs, he claims.
He wants more resources given to law enforcement to monitor the trade.
While Mr Kelly is happy to see fewer young people smoking and wants rates to drop to zero, he questioned whether higher prices were just diverting them to other drugs.
"There is a real risk because of the price sensitive nature of cigarettes that we may merely be trading one health hazard for another," he said.
His comments came as the lower house passed a bill to increase the tax on roll-your-own cigarettes, cigars, snuff, loose-leaf tobacco and other prodcuts to bring them in line with manufactured cigarettes.
The change, announced in the May budget, will be made over four years and is expected to rake in $360 million.
