The price of cigarettes would rise to $20 a pack under a Gillard Government proposal that would reap an extra $1.25 billion a year in taxes.
The West Australian understands the Government is considering a 25 per cent rise in tobacco excise that would raise $5 billion over four years.
The plan emerged from a Treas- ury reconsideration of so-called "sin" taxes. It would repeat the financial windfall from an identical move in 2010.
The proposal is in line with long-standing advice from the National Preventative Health Taskforce and would lift the price of a pack of 30 cigarettes by $2.62.
Peter Jackson 30s, now about $18.30, would cost almost $21 under the measure and the price of Dunhill 25s would increase $2.18, taking the retail price to more than $19.50.
The excise increase may be timed to coincide with the introduction of mandatory plain-packaging for tobacco products on December 1.
International research has found there is a 4 per cent fall in smoking rates for every 10 per cent increase in price.
Anti-smoking crusader and Curtin University Professor Mike Daube said higher cigarette prices would discourage children and people on low incomes from smoking.
"An excise increase sooner rather than later could also prevent tobacco industry efforts to subvert the impact of plain packaging by lowering prices," he said.
Amid declining commodity prices and a political imperative to return its Budget to surplus, the Government needs billions of dollars in savings to fund pledges in education, disability and dental health.
It is looking at increasing the tax rate on high-income earner's superannuation, in line with a change made in the May Budget.
The Government raised an extra $1 billion by increasing the 15 per cent superannuation tax rate to 30 per cent for people who make more than $300,000 a year, a measure that affected fewer than 130,000 people.
Treasury is believed to be looking at reducing the threshold to $250,000.
Julia Gillard, who has signalled a clampdown on middle-class welfare, said the best way to pay for things such as the National Disability Insurance Scheme was to grow the economy. But the Prime Minister conceded stern action was needed to ensure all Government programs were properly financed.
"I am going to ask the nation to make some decisions, some tough decisions, about how we will fund the things we should truly value the most," she said yesterday.
Treasury is pressuring the Government to review tax breaks in the corporate sector.