State's high-risk surplus

THE Baillieu government's budget surplus was built on a series of ''risky'' decisions to siphon hundreds of millions of dollars from publicly owned agencies, the Auditor-General has warned.

In a blow to the government's financial management claims, a report tabled in Parliament says the strategy of ripping cash from publicly owned entities that sit outside the budget accounting framework - including water authorities, WorkCover and the Transport Accident Commission - to deliver promised surpluses is threatening the financial viability of those agencies.

''Relying on agencies outside the [general government sector] to support … revenue is a risky strategy,'' warns the audit report, which was tabled on Wednesday.

It says the approach depends on the ability of the agencies to raise revenue from consumers or go into debt to pay ''dividends'' to the government.

This ''potentially could risk the financial sustainability of those agencies''.

The finding is a setback for the government, which has highlighted a series of budget surpluses as one of its proudest achievements.

It also appears to contradict claims by Treasurer Kim Wells that the decision to lift dividends had no impact on the financial health of the agencies.

The government brought forward an extraordinary $203.9 million in dividends from water retailers and Melbourne Water in 2011-12. It also introduced special laws to take a $147 million dividend from the Victorian WorkCover Authority.

Facing falling GST, stamp duty and payroll tax revenues, the government also took a $40 million dividend from the Transport Accident Commission, and offloaded a $100 million liability from the Health Department onto the Victorian Managed Insurance Authority.

The report says these revenue grabs - worth $490.9 million in total - underpinned the 2011-12 surplus, allowing the government to meet its minimum target of $100 million.

But the report, by Auditor-General Des Pearson, says the practice of relying on dividends to prop up the budget could mean that underlying drivers of deficits ''such as inefficiency, waste or poor financial decision-making'' were not addressed.

Facing claims that it was putting at risk important public agencies for political purposes, Mr Wells said Victoria was the only state to hold a AAA credit rating with a long-term stable outlook.

''We have stuck to our wages policy and implemented savings and revenue-raising measures of $2.2 billion a year to constrain expenditure growth,'' Mr Wells said.

''These measures have kept the budget in surplus despite Labor's legacy of debt and a write-down of $6.1 billion of GST revenue from Canberra.''

Opposition finance spokesman Robin Scott said the government's strategy was placing burdens on important community institutions such as the TAC and WorkCover.

''Protecting workers' health and caring for injured workers must remain the focus for WorkCover,'' Mr Scott said. ''These key roles are weakened by increasing requirements to pay dividends to prop up the budget.''

Meanwhile, a separate report by the Auditor-General revealed that the four metropolitan water entities had all been forced to borrow money from Treasury to pay the dividends.

This story State's high-risk surplus first appeared on The Age.