THE State Government faces a $1 billion revenue shortfall.

The Government handed down the its budget update today.

Despite the revenue shortfall, Treasurer Kim Wells was predicting Victoria would have a surplus of $137 million in 2012-13.

But this would only happen after the Government made further $750 million saving in "new efficiency measures to address ongoing revenue challenges" over the next four years.

"Weakness in the national economy and continued uncertainty in the Eurozone has seen forecasts for taxation and GST revenue between 2012-13 and 2015-16 fall by $6.7 billion in the past two years,'' Mr Wells said.

"In addition to the loss of billions of dollars in GST revenue from the Commonwealth, a further $1 billion has been wiped from the states bottom line since the May Budget.

"These reductions have occurred despite solid growth in the Victorian economy last financial year, highlighting the importance of maintaining fiscal disciplines.''

Premier Ted Baillieu said Victoria now had "the strongest finances in Australia as a result of the steps the Coalition Government has taken to strengthen Victoria's finances, prioritise investment in frontline service delivery and grow the economy''.

"Victoria is one of only two states in Australia forecasting budget surpluses over the forward estimates.

"Victoria is the only state with a triple-A rating and a stable outlook from both major international credit rating agencies.''

New "efficiency measures'' are expected to include further reductions in government departmental staffing.

The Government is also expected to increase in licence renewal fees.

The 2012-13 Budget Update also makes provision to fund the new Monash Children's Hospital, redevelopment of the Royal Victorian Eye and Ear Hospital,  the Victorian launch site for the National Disability Insurance Scheme, a $90 million package to address family violence and sexual assault and implementation of the fire services property levy.