Labor is under increasing pressure to lower the tobacco excise as One Nation has promised to significantly cut the tax to stamp out organised crime.
The excise currently adds $1.53 to the cost of every cigarette or around $2500 per kilogram of tobacco content, according to the Australian Tax Office, with another increase due in September.
One Nation Leader Pauline Hanson has pledged to cut the excise by 75 per cent, returning it to a similar rate to September 2015.
Ms Hanson has accused Labor of underwriting organised crime by raising the tobacco excise and forcing the trade underground, where illicit cigarettes are estimated to be worth billions of dollars.
One Nation MP Barnaby Joyce said constantly putting up the price of cigarettes and expecting more tax revenue is "absurd economics".
"You're going to get more mafia ... and that's precisely what's happening," Mr Joyce told the ABC.
"And the only way we can deal with the criminality ... is to bring back the price of legal cigarettes into the same realm as where the illegal ones are.
"More young people have access to more affordable cigarettes, and we don't want that."
An estimated 80 per cent of all tobacco consumed in 2025 was illicit, up from 12 per cent in 2017, according to the Australian Bureau of Statistics.
Concern about the illegal trade comes after Victoria Police reported more than 200 arson attacks related to Melbourne's "tobacco wars" in the past three years.
The firebombing of tobacconists in the state has emerged as a key issue for the upcoming Victorian election where One Nation hopes to gain multiple seats in the parliament.
Federal Labor has held off changing the tobacco tax despite calls from NSW Premier Chris Minns to intervene in July.
Treasurer Jim Chalmers has again dismissed calls to take an economic approach to the flourishing black market.
"The government's focus is on the law and order aspects of this substantial problem," Dr Chalmers told the ABC.
Recent successful raids of illegal supply prove the worth of increased funding for policing, he said.
