VicRoads will be partly privatised for four decades in a bid to generate $7.9 billion for the state.
A consortium of Aware Super, Australian Retirement Trust and Macquarie Asset Management will run licensing and registration for the next 40 years, while the state government maintains ownership of the service.
The move is the result of a 15-month modernisation program that started last year. Funds raised will go into the Victorian Future Fund to manage pandemic debt.
The state government will continue to control data, privacy provisions and essential fee prices, and will recommence all operations after the partnership ends, Treasurer Tim Pallas said.
"This is not a privatisation in anybody's language," Mr Pallas told reporters on Friday.
"We're always looking to see how we can drive better services, better performance, but we will never divest the ownership of assets."
Independent integrity bodies, including the Victorian Ombudsman, will still provide oversight.
Under the changes, learner and probationary licences as well as online testing will be made free.
Drivers who avoid demerit points in the three years before their licence expires will get a 25 per cent discount on the cost of renewal.
The Australian Services Union worked with the state government to ensure existing workers keep their jobs and conditions until their enterprise bargaining agreement ends in 2024.
ASU Victoria Branch assistant secretary Leon Wiegard described the privatisation of public assets as concerning.
"You just have to have a look at your last energy bill to see how it usually works out for consumers," Mr Wiegard told AAP.
"We have been able to work out a pretty good set of conditions for our members, but this is the third privatisation that the government's engaged in. We think that's a bad idea."
The Victorian Opposition has also criticised the move, describing it as a fire sale to pay for record debt.
"No one would buy VicRoads in this way unless they planned to make money from it," treasury spokesman David Davis told reporters on Friday.
He claimed the move will mean higher prices for registration and licences, and an impact on family budgets.
The Victorian Greens have also accused the state government of putting profit over people.
"With the privatisation of Port of Melbourne, the Land Titles Office, public housing estates and now VicRoads, Victorians have a right to know months out from the election what other public assets or agencies are on the government's privatisation hit list," Greens MP Sam Hibbins said in a statement.
Australian Associated Press
