Victorians will soon pay a levy to fund their state's mental health system, after a royal commission found it 'catastrophically' failed people.

Victorians will be the first in Australia to pay a levy to fund mental health services, after a royal commission found the state had "catastrophically" failed too many struggling people.

Mental health expert Professor Patrick McGorry believes the approach should be considered to go national as the Productivity Commission reviews the mental health system.

Premier Daniel Andrews insists not introducing a levy to improve the system would cost Victorians more in the long run, with its current shortcomings robbing the state's economy of $14.2 billion each year and leaving a trail of tragedy.

The system's failings were laid bare in a 680-page interim report released on Thursday by the Victorian mental health royal commission, which has made nine recommendations for change.

The report says an estimated 105,000 Victorians with severe mental illness are not receiving specialist care.

"Once admired as the most progressive in our nation, the state's mental health system has catastrophically failed to live up to expectations," the four commissioners wrote in the report's forward.

They recommended a "substantial increase" in funding is needed to turn things around, suggesting a new revenue mechanism - a levy or a tax - and a dedicated capital investment fund.

The new revenue stream would avoid the sector having to regularly argue the case for adequate funding and prevent funds being diverted from other kinds of services.

"For these reforms to be implemented, we do not believe that the standard budget processes will prioritise mental health in the way that it needs to," Royal commission chair Penny Armytage told reporters.

Professor McGorry said the Productivity Commission, which is reviewing the national mental health system, could learn from Victoria.

"They actually have analysed the problem in a great way economically, but their solutions so far leave a lot to be desired," he told reporters.

Mr Andrews promised to implement all nine recommendations, including introducing a new levy in 2020.

"It will take time and it will be very, very costly, very, very expensive," he told reporters.

"But the cost of inaction is far, far greater, and so much of it really can't be measured, because it is about lives lost."

For people like Julie Rickard, who lost her partner of 15 years Steve to suicide when he was 44, that cost is all too real.

When Steve became distressed, she had taken him to hospital, only to have her concerns dismissed.

He took his own life two days later.

"We fell through the cracks and I paid the ultimate price. I didn't just lose my partner, I lost our future. And I now have a huge Steve-shaped hole in my life," she told reporters.

The Victorian opposition says more taxes are not the answer.

"We should put appropriate funding towards mental health, but that can be achieved without adding a new tax or levy," coalition mental health spokeswoman Emma Kealy said.

The royal commission has also called for funding for 170 additional youth and adult acute mental health beds to help address "critical demand pressures", as well as new centres for mental health and wellbeing.

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