Labor is planning to increase the tax on cigarettes if elected next year and would put the money into the nation's schools and hospitals.
As debate rages about whether the government will increase the GST from 10 to 15%, Labor has proposed instead raising the tax on cigarettes by 12.5% each year, from 2016 till 2019.
"The Liberals' line that jacking up the GST is the only viable option is bullshit," a senior Labor party source told BuzzFeed News.
A packet of ciggies costs anywhere from $20 in Australia, with Labor tax increases expected to drive up the cost of a single cigarette to $1 each.
It's believed the measures would raise more than $40 billion over a decade and could be used to fix the budget, like paying for things like the Gonski education reforms.
Labor has been arguing that raising the GST is unfair because it's a regressive tax which disproportionally affects those that are worst off. It's challenging the PM to look at other options, like cigarettes.
"Turnbull has said everything is on the table when it comes to tax - he suggested this one himself," said the spokesperson.
As opposition leader Malcolm Turnbull included the proposal in his budget reply speech from 2009.
In Question Time on Monday, Turnbull took several questions on raising the GST, refusing to reveal whether the government was ready to take an increase to next year's election.
But when answering a question from Labor MP Ed Husic, Turnbull described Labor's opposition to applying the increase to fresh food as a "powerful point".
"The honourable member obviously believes the GST should not be expended to extended to fresh food, and that is a powerful point," said Turnbull.
"He should make that point. But the honourable member should understand that the government is going to consider all of the options which are being raised."