Health Minister Tanya Plibersek would be delighted if a potential tax hike on cigarettes led to smokers quitting and ultimately less government revenue.
Smokers might be targeted when the Rudd government releases its economic update statement on Thursday or Friday.
Health Minister Tanya Plibersek would not confirm a tobacco tax increase on Wednesday but said it could have benefits.
"There's a strong public health case for increasing the price of tobacco," she told Sky News.
The measure could stop scores of young people taking up smoking.
A ten per cent increase in the cost of tobacco results in a four per cent general drop in consumption.
But for young people it was a decrease of between five and 12 per cent, she said.
"Young people are the most price sensitive," Ms Plibersek said.
People on low incomes could also reap a health benefit if tobacco taxes increased because of their price sensitivity, she said.
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.
The Seven Network has reported the Rudd government will announce the tax hike on cigarettes on Thursday and that will raise more than $5 billion over four years.
Ms Plibersek rejected arguments there could be an expansion of black market products.
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