The Government last night cast doubt on speculation that the Minister for Finance, Mr McCreevy, will raise the price of a packet of 20 cigarettes by 79p next week.
According to RT╔ News, Mr McCreevy is considering the tax increase on tobacco to partly fund the cost of the Government's health strategy.
The €1 (79p) increase would raise £200 million extra in revenue.
However, it would force inflation up by more than 1 per cent, further encourage smuggling and dampen down legal lucrative cross-Border purchases by people from Northern Ireland.
Questioned about the speculation, a Government spokesman said he doubted if the planned increase would be of that amount in next Wednesday's Budget.
The Minister for Finance increased the packet of 20 by 10p in 1997, by 5p in 1998 and by 50p in 1999, though he had to avoid an increase last year because of inflation fears.
The Department of Finance, as is usual in such circumstances, refused to either confirm or deny the report, though sources acknowledged that each of "the old reliables" - tobacco, alcohol and petrol - will be taxed further.
However, the inflationary effects of such an increase may finally prevent its adoption.
The 1999 50p increase added 0.8 per cent to inflation. A one euro increase would add considerably in excess of 1 per cent.
In addition, the Minister would also to have to gauge the political impact so close to a general election of such an increase on low-income households, who are disproportionately affected by tobacco increases.
However, speculation about a €1 jump will make it easier for the Minister to increase taxes by a significant, but lower amount.
"Speculation is often nothing more than somebody running up a flag to see who salutes," said one source.
The Irish Tobacco Manufacturers Advisory Council, which represents the country's three biggest tobacco companies "strongly urged the Minister to think again".
The Government is reaping £100 million annually in taxes from tobacco bought by people from Northern Ireland, or Britain. "That will be lost if prices rise by that amount," a spokesman said.
Smuggling would increase dramatically, he warned.
"Ninety million cigarettes have already been seized this year by the Customs and Excise, most recently in Dundalk."
The Fine Gael spokesman on Health, Mr Gay Mitchell TD, said the revenue from tobacco taxes should be used to double income eligibility limits for medical card holders.
"The Minister now has a golden opportunity to increase the number of people on low incomes entitled to medical cards," said Mr Mitchell, who chaired a recent Oireachtas report into the tobacco industry.
