NSW govt welcomes royal commission

The NSW government has welcomed a royal commission into union corruption, claiming any factors that drive up infrastructure costs are detrimental to state interests.

Prime Minister Tony Abbott announced the terms of reference for the royal commission on Monday.

It follows allegations of union officials being involved in bribery, extortion and kickbacks, and links to organised crime on major projects such as Sydney's Barangaroo development.

NSW Premier Barry O'Farrell said it was in the taxpayers' interest that infrastructure projects were as cost effective as possible.

"...and if dodgy deals are driving up those costs, we need to expose it and correct it," he said in a statement.

"The many tens of thousands of people with a job in the construction industry deserve a level playing field.

"Any union or employer not doing the right thing should be called out."

Mr O'Farrell said his government would fully co-operate with the royal commission.