TORONTO - Ontario's Liberals poured cold water Thursday on a bid by Progressive Conservative Toby Barrett to lower tobacco taxes in an effort to stem a flood of illegal cigarettes, using their majority to defeat his private member's bill.

Barrett's bill would have cut Ontario tobacco taxes by one-third, from 12.35 cents per cigarette to 8.23 cents, and called for a similar cut in federal tobacco taxes.

"Tax hikes are no longer forcing people to quit smoking," Barrett told the legislature.

"It forces them to find a cheaper alternative, whether it's from the trunk of a car or at a smoke shack at Six Nations or elsewhere. The law of diminishing returns was reached a long time ago."

Even before second reading of Barrett's bill began Thursday, Liberal cabinet ministers were shutting down the idea of cutting tobacco taxes to try and make legal cigarettes competitive with the much cheaper, illegal smokes.

"We are with those who believe that we need to get our smoking rates down (and) that taxation is an effective deterrent," said Revenue Minister John Wilkinson.

"I think it's important that people understand when they buy illegal cigarettes, they are stealing from their neighbours."

Even Health Promotion Minister Margarett Best, the person in charge of Ontario's anti-tobacco strategy, said Thursday that cutting taxes won't solve the problem of contraband cigarettes.

"I do not necessarily think that cutting taxes is going to be of significance," said Best.

When both the Ontario and federal governments slashed tobacco taxes in 1994, illegal smoke shacks shut down almost overnight, said Barrett, but many are back in operation and now sell more than 50 per cent of all tobacco in Ontario.

Experts predict that figure could grow to 80 per cent by next year, said Barrett.

"Losing control of the tobacco trade has had devastating effects, not only on health but also economically and socially," he said.

"Government inaction justifies participation in the illegal trade, and it does suggest to some that tax evasion is tolerated."

It was "silly" for Barrett to accuse the government of tolerating the illegal trade and tax evasion, Liberal Dave Levac fired back in the legislature.

Barrett also said cutting the tobacco taxes would be a nice break for residents of Caledonia, near the Six Nations reserve where many illegal cigarettes are sold.

Native protesters have been occupying a former housing development in Caledonia for more than three years in what Barrett said is a dispute that's as much about tobacco as it is about land.

Despite the Liberal objections, Barrett said he remained convinced that tax cuts, along with education and enforcement, are the way to "break the back of the illegal trade" in tobacco.