Fairfax Media reported on Wednesday that Racing Victoria was standing by its decision not to allow Mr Waterhouse to work the rails at Warrnambool's May carnival next week, despite calls from the Dr Napthine, to re-think the ruling.

The Premier denied that he wanted Mr Waterhouse to work the rails at Warnnambool's May Racing Carnival because the bookie's wife was the headline attraction at a $100-a-head local Liberal fundraiser on April 30, saying the event was arranged months ago.

The Premier, who is also Racing Minister and Warrnambool's MP, said Mr Waterhouse's presence at the carnival would have helped boost the crowd as well as allowing punters to bet with locals rather than online operators who operate interstate or overseas.

"It [the carnival] would be even more enhanced be having Robbie Waterhouse in the ring to attract people through the gates, and to attract those people who do come through the gates into the betting ring to have a bet with Robbie Waterhouse or other bookmakers," Dr Napthine said.

"It would be a win-win for all bookmakers rather than [punters] having a bet on their phones or staying home and having a bet with corporate bookmakers that aren't even at the track."

On April 30, the local branch of the Liberal party is hosting an event at the track featuring Ms Waterhouse and the Premier – "Have a drink with racing royalty at the 'bool!," the flyer says.

Dr Napthine said there was "absolutely no conflict of interest whatsoever" in regards to the fundraiser, saying the Labor party had engaged in gutter politics of muck-racking.

The Labor Opposition said Dr Napthine's decision was not a good look, especially in an industry where integrity was critical to the sport's survival.

“For the Racing Minister to involve Gai Waterhouse in a party political endeavour—a fundraiser for himself, demonstrates arrogance and bad judgement on his part," opposition racing spokesman Martin Pakula said.

“Denis Napthine clearly fails to appreciate that perceptions are everything in an industry that has no future without the highest levels of integrity."

The Premier initially made his comments about Mr Waterhouse being unable to work at the carnival to a Warrnambool Standard journalist when asked about Racing Victoria's decision.

He never lobbied Racing Victoria over the decision. Dr Napthine also said he had not spoken to the Waterhouse couple. Mr Waterhouse was granted a Victorian bookmakers licence last November, and has stood at three Melbourne meetings since.

Social justice advocate Tim Costello said he was shocked by Dr Napthine's position, as well as his promotion of betting. "I would have thought, given Barry O'Farrell's sudden demise, that every Premier would be on high alert on public perception, even if it appeared innocent," Mr Costello said.

"We know Australians are able to place a bet with multiple option without the urgings of a Premier, it is not befitting of the office, the Premier should not be spruiking the gambling industry."

Part of the funds raised at the drinks will be donated to Peter's Project, which was a secret announcement to be made on the night.