The Australian government is increasing the tax on cigarettes by 25% from midnight Thursday, and will force tobacco companies to use plain packaging from mid-2012.
A government statement says the changes will cut tobacco consumption by 6% and the number of smokers by 2% or 3% or about 87,000 Australians.
It comes just over a day after the New Zealand Parliament pushed through tax increases that will raise the price of cigarettes and tobacco.
Raising tobacco excise will generate an extra $A5 billion over four years, the government says, and the money will be directly invested in hospitals.
Internet advertising of cigarettes will also be restricted, and an extra $A27.8 million will be spent on anti-smoking campaigns.
New legislation will prohibit logos, brand imagery, colours, and promotional text other than brand and product names in standard style from 1 July 2012. There will still be graphic health warnings on the packaging.
It will mean Australia is first country in the world to force cigarette companies to use plain packaging.
Black market fears - manufacturer
In a statement, British American Tobacco Australia says it opposes the packaging plan and is surprised the announcement has been made while a Senate inquiry into the issue is underway.
It says the move could bolster the black market tobacco industry, leading to lost tax revenue and more underage smoking.
Imperial Tobacco Australia spokesperson Cathie Keogh says her company is now looking at its legal options.
She says the move affects the value of its business, and may be to the detriment of public health, because the packaging would be easy to copy by counterfeiters engaged in illicit tobacco trade.
"That illicit product won't have or may not have the health warnings on it. It won't be subject to ingredients reporting."
Health Minister Nicola Roxon says the legislation will be carefully drafted to hold up against any legal challenge.
She says the plain packaging rules are sensible and recommended by the World Health Organisation.
Prime Minister Kevin Rudd says the measures will reduce deaths from smoking-related illnesses and provide much-needed funding to improve health services.