Smokers are expected to be slugged by a 12.5 per cent tax hike on cigarettes each year for four years.
AAP understands Treasurer Chris Bowen will make the announcement in Sydney on Thursday and that the tax increase will raise $5.3 billion over the forward estimates.
Prime Minister Kevin Rudd hinted a tax increase was on the cards on Wednesday.
"Cancer is Australia's number two killer and therefore it is a number one priority for the Australian government," Prime Minister Kevin Rudd told reporters.
"I'm the son of a woman who never smoked in her life and she died of lung cancer, we assume through passive smoking."
Health Minister Tanya Plibersek would not confirm a tobacco tax increase but said it could have benefits.
"There's a strong public health case for increasing the price of tobacco," she told Sky News.
Australia spends $31 billion on health care for ill smokers.
"If we see a decline in smoking rates and that causes a drop in excise collection that would be a fantastic outcome," she said.
In April 2010 Labor lifted the cigarette excise by 25 per cent, adding $2.16 to the price of a pack of 30 smokes.
In this year's federal budget, smokers copped a seven cent rise in the cost of a packet of 25.
Anti-smoking groups agree taxing tobacco is an effective preventative measure.
Shadow treasurer Joe Hockey said Labor was hitting people with higher taxes and dressing it up to look like a health initiative.
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