Prime Minister Kevin Rudd is considering increasing taxes on cigarettes to help fill the looming budget shortfall of some $20 billion.

Fairfax Media understands Mr Rudd may reveal the tobacco tax hike when the Labor Party releases its economic statement, which Treasurer Chris Bowen is expected to hand down within days.

Cigarette taxes may be raised to cover a budget shortfall. Credit:Wesley Lonergan

Mr Rudd hinted at his new cigarette tax at a press conference on Wednesday. While announcing an additional $19.5 million in federal funds for a cancer centre at Royal Prince Alfred Hospital, the Prime Minister said tobacco was the number one preventable cause of cancer in Australia.

Mr Rudd told reporters that about "30 per cent of cancer" was caused by tobacco consumption and it was estimated to kill 15,000 people a year.