Member for Swan Hill Peter Walsh, who is also the Shadow Minister for Country Water Resources, has called for independent judicial inquiry to be established.

Mr Walsh said an inquiry with the full suite of judicial powers was the only way Victorians could be sure of the probity of the use of public funds.

"The Auditor-General has exposed further evidence of irresponsible decision-making and poor governance," he said.

"The report found Premier John Brumby committed $1 billion to the FMP 'based on advice of water savings and cost assumptions that had not been verified, technology that had not yet proven itself and the feasibility of the project, which was unknown'."

Mr Walsh said the inquiry should investigate aspects of the government's mishandling of the Foodbowl Modernisation Project and the Sugarloaf Pipeline.

These include the commitment of funds without cost benefit analysis, doubt surrounding the estimates of real water savings, the decision to build the Sugarloaf Pipeline before the government had secured legal access to the water and the decision to proceed with the Foodbowl Modernisation Project on the basis of advice from a non-representative stakeholder group.

Mr Walsh said the Auditor-General had again backed the Coalition's view that the Foodbowl Modernisation Project and the Sugarloaf Pipeline were ill-conceived projects planned by a panicked government which, for 10 years, had failed to plan for Victoria's water needs.

"Contrary to the explicit and mandatory business case guidelines for projects such as these, the development of business cases for the FMP and the north-south pipeline commenced only after the government had committed to the projects and approved the funding," Mr Walsh said.

"Labor is causing untold damage to communities in northern Victoria which have been decimated by the loss of water and the government's rationalisation of irrigation infrastructure.

"In the interest of full disclosure, these failures must now be investigated by an independent judicial inquiry."

Federal Member for Murray, Sharman Stone welcomed the Auditor General's findings.

Dr Stone described the reports as one of the most damning ever made by the state's Auditor General.

"For the three local irrigation projects and the Sugarloaf Pipeline, the Auditor General has said all cases lacked the evidentiary rigour appropriate to the risk and costs of the projects, analysis of costs and benefits for superficial and information to support the basis of water savings assumptions was lacking," she said.

"Unfortunately these are not just projects which affect some share holders in a business that has a range of other options for their survival. In the case of northern Victoria and the State Governments activities and behaviour, these are life and death issues for dozens of small communities across the electorate of Murray.

"While everyone is in agreement that the irrigation system in northern Victoria needed major capital investment, this investment should have been carefully carried out looking at all the options, looking at best value for money and how to best sustain irrigation into the future."

Local farmers who have spent the last three years lobbying against the development of the Sugarloaf Pipeline believe their opinions regarding the project have been vindicated.

In a letter to the editor, Plug the Pipe member Jan Beer said the estimated savings the water projects were projected to achieve were "fundamentally flawed".

"As it has become increasingly difficult to find water to send to Melbourne via the pipeline, they have moved from foodbowl modernisation of the entire system to foodbowl rationalisation and massive social engineering, where many food producers are now faced with a very bleak future as the Government pursues a 60 per cent reduction of the irrigation area," she said.

"Whole irrigation areas are now being permanently removed from irrigation and others are being selectively targeted, in a bid to acquire 'water savings' to be sent to Melbourne.

"The only way the Labor Government can achieve the proposed 'water savings' is to take it from the existing entitlements of food producers or steal it from the environment."

Environment Victoria urged the State Government to learn from past mistakes in planning for northern Victoria's future.

"The Auditor-General's report again shows that modernising irrigation infrastructure is a very expensive, and not wholly guaranteed method of securing water," the lobby group's chief executive officer, Kelly O'Shanassy said.

"While we need to ensure that our farming is as water efficient as possible, we also need to consider other methods of safeguarding water security for regional communities and the environment."