The money is sitting in state government bank accounts due to a levy on every tonne of garbage that councils and tip operators bury in landfill.

The failure of successive state governments to spend the so-called Sustainability Fund will now be investigated by Auditor-General Andrew Greaves.

Mr Greaves said three agencies would also be grilled on the $208 million to be taxed on rubbish sent to landfill by councils and dumps next financial year.

The audit plan, released last week, found Victorians were paying far more into the fund each year than was being spent.

In the past five years, the fund has swelled by almost 300 per cent. It had $466 million sitting in it last year, and the government expects it to rise to $531 million this financial year.

But while the money gathered has skyrocketed, the Auditor-General has found the amount spent on green projects fell by a third.

Environment Minister Lily D'Ambrosio is trying to reverse this, pledging $166 million for projects in the next financial year alone, including $15 million to ban e-waste from landfills.

But there have been complaints about what else the money is being spent on. Other funding this year includes $22 million for three new outer Melbourne parks, $8 million for a new Parks Victoria website and database and $21 million to restructure the Environment Protection Authority.

The landfill levy works by taxing councils and tip operators $63 for every tonne of rubbish buried.

Councils generally pass this expense straight to ratepayers. One council, Whittlesea, calculated every household in its suburbs pays a "hidden tax" of $44 a year as a direct result of the levy.

Mary Lalios is a Whittlesea councillor and president of the Municipal Association of Victoria, which has been a fierce critic of the levy.

She said it was a con on Victorians because it was not being used for the purpose it was established for.

"The way it was marketed to councils, it was going to be all about going green," Cr Lalios said. "But successive governments have been reluctant to spend the levy and now it's just propping up their bank account."

Another councillor, Port Phillip's Dick Gross, has campaigned for years over the levy - although he argues it should be higher and its funding better targeted. He said the state was instead keeping the money to "shore up its triple A credit rating".

"This is local government supporting the state government - they bash us to bits and we get bugger all back - and yet they rely on us to help prop them up."

Western suburbs waste campaigner Harry van Moorst also supports increasing the levy, and agreed what was meant to discourage rubbish being dumped in landfill was instead just gathering millions for the state.

"We've got so many holes in the ground from mining, so to fill them with waste will be so much more lucrative than coming up with better ways of dealing with them [unless the landfill levy is even higher]," he said.

A spokesman for Ms D'Ambrosio said the fund that collected the landfill levy was there to "encourage the best practices in waste management as well as action on the impacts of climate change".

Victorian Greens leader Greg Barber said waste reduction efforts had stalled and the levy set up to help was instead "being diverted to all sorts of government pet projects".

"If they still aim to reduce waste going to landfill, bring in a plastic bag ban and and a container deposit scheme. Those thing will make a big difference without adding further imposts," he said.

When it was introduced, the landfill levy was meant to drive technological innovation to improve recycling.

Gavin Jennings, today Labor's Special Minister of State, was environment minister in 2008. During an amendment to the landfill levy he cited a $2 million grant to a recycling company to improve its plant.

"These are the types of investments that come out of this fund, and it is our intention to drive that technological change even further," he told Parliament.

Victorians need to cut the amount of garbage they generate to avoid massive problems with how to dispose of the waste. With the state's population today around 6 million, audit office figures show an annual waste output of about 12 million tonnes. If nothing changes, the current trend would see it increase to 21 million tonnes by the year 2043.

Environment Victoria chief executive Mark Wakeham said it was promising to see the fund starting to be spent by the state government on environmental purposes.

"But the challenge they have got is to spend the accumulated surpluses from previous years," he said.

He backed introducing a plastic bag ban and container deposit legislation as specific measures that would instantly cut landfill. He also said the money should be spent on more energy efficiency and renewable energy programs to cut emissions.