Victoria’s mental health inquiry will be crucial in easing the stress on the state’s crowded prison system, Premier Daniel Andrews has indicated, raising the prospect of further reforms to prevent people entering cycles of crime.

But Mr Andrews says his government will persist with its tough-on-crime policies, under which Victoria's prison population has jumped by almost 10 per cent in less than a year.

Premier Daniel Andrews has conceded there are tough challenges down the track for his government. Credit:Jason South

In an interview marking Monday's milestone of 100 days since the state Labor government's re-election, Mr Andrews said he stood by the government’s decisions to introduce “some very tough sentencing, bail and also remand reforms” in the previous term.

He also acknowleged his government faced major challenges in its current term in maintaining a strong economy, with Melbourne’s cooling housing market reducing the stamp duty revenue stream that helps prop up the Victorian budget.