Victoria's belief it would get $1.45 billion in federal top-up funds for leasing Melbourne's port was "wilful misunderstanding", Treasurer Scott Morrison says.
The port lease sold for $9.7 billion and the state expected to get a 15 per cent top-up from the federal government's asset recycling initiative to put into level crossing removals.
But instead the state will only get $877 million to spend mainly on the Melbourne Metro Rail project.
Mr Morrison said Victoria not only missed the June 30 deadline for applying but the state was never going to get 15 per cent of the sale price to spend.
"It's not 15 per cent on the sale price, it's 15 per cent on the agreed apportionment of funds to projects, that comes from the asset recycling process," Mr Morrison told reporters on Tuesday.
"I think there has been some misinterpretation and wilful misunderstanding on behalf of the Victorian government."
NSW got more than $2 billion for selling Transgrid for $10.25 billion.
When former treasurer Joe Hockey announced the scheme it was clear states and territories would get 15 per cent of the price of the asset sold "if all the sale proceeds are allocated to new infrastructure investment".
Mr Hockey also said selection of the assets to be sold and the infrastructure to be built was entirely up to state governments.
Victoria is the fastest growing state in the nation and home to a quarter of all Australians, but gets just nine per cent of federal infrastructure funding.
Mr Morrison said Victoria had only put forward the Melbourne Metro Rail project and the Murray Rail project, so they got funded.
But in June the Victorian government wrote to Mr Morrison - before the scheme's deadline - saying the money would be used to remove level crossings.
The Treasurer did not respond to that letter until after the port had been leased, when he said the scheme had ended and Victoria had not signed an agreement over funding.
He said there was still $1.5 billion set aside for Victoria if it ever wants to build the East West Link toll road, which the state paid $1.2 billion to axe.
