Melbourne officials want to keep the Australian Grand Prix beyond its current deal, but have admitted they are not comfortable with the current financial terms.
Tourism Minister Louise Asher said on Wednesday the government had subsidized this year's event by $56 million despite an increase in the number of tickets sold.
Melbourne has a contract to host the grand prix until 2015, but has been under pressure from F1 boss Bernie Ecclestone to turn it into a night event.
Asher said Melbourne wanted to secure a new deal, but not under the current terms.
"I'd love to have the race beyond the 2015 contract, but the contract that we discuss has to present value for taxpayers and I'm not comfortable with this level of subsidy," Asher was quoted as saying by The Age newspaper.
"The Brumby Labor government signed off on a contract that is too expensive for the taxpayer in my opinion. This is a very, very expensive race and I personally am not happy with this level of subsidy."
She admitted she expected further losses unless cost-cutting measures are put in place.
"You can reasonably expect that without significant further cost-cutting from the (Australian) Grand Prix Corporation, the subsidies will go up," she said.
Peter Logan, a spokesman for the Save Albert Park group, told the newspaper that the grand prix could not continue under the current financial deals.
"This is a failed business model ... every other event in Melbourne is run by people who know what they're doing with very little government subsidy in purpose-built venues," Logan said.
"The grand prix is run by the government on the most expensive model you could invent and that's why it costs so much money. And it's on a secret contract as well."