Anti-smoking groups have welcomed tobacco tax hikes announced in the 2012 budget, but one tobacco company says high prices will only drive the black market and crime.

Tobacco tax will rise 10 per cent each year for the next four years, sending the average price of a packet of cigarettes to $20.

The government, aiming for a smokefree country by 2025, ruled out an immediate tax hike of 30 per cent and chose instead a sequence of regular, modest and well-signalled increases - deemed likely to cause a long-term and sustainable drop in smoking rates and avoid stockpiling on budget night.

Smoking is estimated to cost $1.9 billion in direct costs to the health sector while tobacco tax currently raises about $1.3b a year.

British American Tobacco's Susan Jones, in response to the tax hike, says consumers already pay a huge amount of taxes on tobacco.

Almost $9 of a $14.40 packet of 20 Holiday cigarettes went to the government, she said.

High tax increases were shown internationally to drive consumers to cheaper options, which grew the illegal tobacco trade, she said.

"The lucrative illegal market benefits no one; it deprives the government of revenue, impacts legal businesses and funds organised crime," Ms Jones said.

However, ASH spokesman Michael Colhoun predicted the industry would respond with such "scaremonger, tired old arguments".

Mr Colhoun said price increases were shown to stop more people, including young people, smoking and encourage smokers to give up.

"We know the rate of smoking is higher amongst more vulnerable populations and they are the ones most sensitive towards price increases," said the Cancer Society's Skye Kimura.

Typically tobacco companies target young people and they were less likely to have disposable income so higher prices will make them less likely to start, and more likely to quit, smoking, she said.