I am not aware of any data supporting either side of the argument, but I have not really researched the subject.
I have researched this topic in a past thread where this issue was debated. I did another google search & came up with 3 hits that seem pretty good.
http://wolfweb.unr.edu/homepage/shubinsk/smokost1.html
http://medicolegal.tripod.com/cost.htm
http://www.usatoday.com/news/health/2004-11-26-smoking-costs_x.htm
I have seen some reports claiming it could save money because of shortened lives--meaning less social security payments. Unfortunately I cannot find any hits for it. I do though want to factor that people just don't die in a zip. There's often times several hospital visits, & several medical treatments that can extend life.
I would be against banning tobacco altogether because I believe that would just lead to an underground economy similar to prohibition of alcohol--> it'll happen anyways but now its untaxed, unregulated & funding organized crime.
And people may find this surprising--NYC & NJ banned the use of tobacco in restaurants & bars, and I was actually opposed to that. The big argument was an overwhelming majority of restaurants & bars backed the ban--so it ought to be made into law. My argument? If you run one of those places & wanted a ban, then ban it from your own place. Why force the places that want to keep it from having it banned? If I like vanilla, doesn't mean everyone else has to like it.
I smoke--a cigar maybe 2x a year. I enjoy it. Funny thing was that even smoking it at that low a rate--I had a craving to smoke about 1 week after a cigar. Geez.
Anyways, getting back to this original post, (without knowing every single detail about it) I can see problems with it. E.g. a non-smoker can pretend to be a smoker, then sign up for this program & then get free credit to buy groceries. It'll happen, especially if its being offered to people who are in the lower SES.
I'd be for offering incentives to people to lead healthier lifestyles--but this to me seems too close to the free government cheese thing.