Prime Minister John Howard, a strong critic of the regime of President Robert Mugabe, said the government would pay fines of up to 1.6 million US dollars which could be imposed by the International Cricket Council.
Australia, who wrapped up a third successive World Cup victory in the Caribbean last week, are due to play three one-day internationals in the troubled southern African nation in September.
Howard told reporters he and Foreign Minister Alexander Downer would discuss the tour with Cricket Australia "because the situation in Zimbabwe has deteriorated very badly".
He said players should be consulted on the issue but the government would make the final decision on whether the tour should proceed.
"In the end, foreign policy decisions have got to be taken by governments and the situation in Zimbabwe is quite unacceptable," he said.
"We would indemnify Cricket Australia for any compensation it might have to pay to the international body. It would not be fair to visit the cost of a foreign policy decision on a sporting body."
Mugabe's regime has drawn international criticism over its brutal crushing of dissent last month as the country spirals into economic meltdown, with inflation running at more than 2,000 percent.
Australian captain Ricky Ponting, speaking Thursday before Howard's remarks, raised the possibility of some players boycotting the tour if it went ahead.
"There are some issues there and every individual player will be asked what their own views on that are, and they'll have a chance to make up their own mind what they want to do," he told The Australian newspaper.
Zimbabwe's most outspoken cleric, Catholic Archbishop of Bulawayo Pius Ncube, is visiting Australia as a guest of the government and has made clear his support for a tour boycott.
"Whenever there is a touring sporting team there is a lot of focus on it to show there is nothing wrong with Zimbabwe," he told the Sydney Morning Herald.
"My encouragement would be let's boycott and not go there, so that in this way we can embarrass and put pressure on this immoral government of Mugabe and his cronies."
Howard made clear his desire to send a protest message to Zimbabwe by cancelling the tour, criticising South African President Thabo Mbeki and other African leaders for failing to stand up to Mugabe.
"No pressure will be applied on Mugabe by the people who should apply the pressure -- people like the South African president and others," he said.
"They're the people, they are his colleagues ... they're his fraternal colleagues and they are people who should be applying the pressure, but it's not coming out."