Australia has slapped a big tax hike on cigarettes, hoping the development would discourage young people from taking up smoking.

Treasurer Chris Bowen is expected to announce on Thursday that smokers will be slugged by a 12.5 per cent increase in cigarettes tax each year for four years.

The impost is expected to raise $5.3 billion over the forward estimates.
Prime Minister Kevin Rudd hinted a tax increase was on the cards on Wednesday, saying cancer was Australia’s number two killer and a number one priority for the government.

Health Minister Tanya Plibersek said the idea could have health benefits particularly for young people and low income earners.

Mr Bowen will also this week release a statement updating some of the forecasts in the May budget ahead of the federal election.

It is likely to contain downgrades to revenue and growth forecasts, and outline the cost of new policies like the Papua New Guinea asylum seeker plan, and new government savings.