A scathing report by Victoria's Auditor-General has found the state government exaggerated the cost estimates used to scrap the 2026 Commonwealth Games.

In a report tabled in parliament today, the state's watchdog criticised Victoria's handling of the event, finding the cost of cancelling the Games would be more than $589 million, including $150 million for employee and operating costs, and a $380 million settlement to Commonwealth Games bodies.

"This waste would have been avoided if agencies had worked together better to give frank and full advice to the government before it decided to host the Games," the report said.

The 2026 Commonwealth Games were cancelled in July 2023, when the then-premier Daniel Andrews warned cost estimates for the event — which had been originally proposed at $2.6 billion — had blown out to almost $7 billion.

The auditor-general's report said while the initial budget was unrealistically low, the updated figure was overblown.

"It added significant amounts for industrial relations and cost escalation risks. But it did not disclose that the budget already included $1 billion in contingency allowances to cover these and other cost risks."

The report found the Department of Jobs, Skills, Industry and Regions' business case "underestimated the costs and overstated the benefits" of hosting the Games, and was inadequate for the state government to make an informed decision on costs.

The Department of Premier and Cabinet and the Department of Treasury and Finance consistently raised cost and other risks in 2022 and 2023, but didn't advise the government that the Games "might be unfeasible" until June 2023, the report said.

In response to the report, Shadow Minister for Tourism, Sports and Events Sam Groth, said the Games were a "cruel hoax delivered to the Victorian people to deliver votes for the government."

"Labor only governs to play politics, and playing politics with the Commonwealth Games has destroyed our state's reputation," he said.

Speaking in parliament on Wednesday, Premier Jacinta Allan, who was the minister responsible for the Games under the Andrews government, said the report confirmed that their government had made the right decision.

"The auditor-general's report today … goes to confirm that it was right of the government to not proceed with the 12-day sporting event that was estimated to cost more than $6 billion, and that as the costs were continuing to increase, there was no benefit that was initially anticipated," she said.

ABC/AAP