Pauline Hanson wants to massively cut the taxes on tobacco. (ABC News: Keane Bourke)
One Nation wants to slash the tax on cigarettes by 75 per cent and freeze indexation for three years, saying a cut to the tobacco excise will help make the black market trade unprofitable.
The tobacco commissioner says more than half of all tobacco consumed in Australia is now coming from the black market, which has led to as much as $12 billion in taxes being lost each year.
The federal government says it will continue to pursue a law enforcement response to the illicit tobacco trade, following recent raids on more than 100 retailers suspected of dealing in black-market tobacco.
One Nation leader Pauline Hanson says her party wants to wipe out the booming tobacco black market by slashing the tax on a packet of cigarettes by nearly $30, bringing it close to the cost of illicit cigarettes.
Health Minister Mark Butler conceded last year that the tobacco black market had "exploded" as smokers chased cheaper cigarettes, and caused a wave of crime including arson attacks against retailers by organised crime groups seeking to dominate the illicit trade.
But the government has resisted any cuts to the tax on tobacco, which has been successively lifted over the past 15 years and now makes up more than half the cost of a pack of cigarettes.
One Nation MP Barnaby Joyce told ABC Radio National that high taxation had fuelled the black market.
"If you keep on putting up the price of cigarettes, you are going to get more mafia," Mr Joyce said.
"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."
Senator Hanson said the tobacco tax had "failed" as she proposed the 75 per cent cut and a three-year pause on indexation.
"It has handed a multi-billion-dollar market to organised crime while excise revenue collapses," Senator Hanson wrote on social media.
"Cut the tax. Smash the black market. Cut off the cash for organised crime."
In December, Australia's tobacco commissioner estimated at least half of all tobacco being consumed in Australia was now being sourced from the black market, generating criminals more than $4 billion in profit.
Tax revenue from tobacco, meanwhile, has collapsed, with the commissioner estimating between $7.7 billion and $11.8 billion in revenue has been lost just in the past financial year.