Five unions have been named as specific targets in a royal commission into corruption.
The Australian Workers Union, Construction Forestry Mining and Energy Union, Electrical Trades Union, Health Services Union and Transport Workers Union were named in the terms of reference released in Canberra on Monday before parliament resumes for 2014.
"This royal commission is designed to shine a great, big spotlight into the dark corners of our community to ensure that honest workers and honest businesses get a fair go," Prime Minister Tony Abbott told reporters.
Honest workers and honest unionists should not be ripped off by corrupt officials and honest businesses should be able to go about their work without fear of intimidation, corruption (and) standover tactics, he said.
The commissioner will not be limited to looking at the five unions, or at employers who may have engaged in improper conduct or criminality.
"This is a sword that will cut both ways," Employment Minister Eric Abetz said.
Former High Court judge Dyson Heydon will lead the inquiry, which is expected to report to the Abbott government at the end of 2013.
During the past two years there have been many allegations against union officials - some of which are before the courts - including misuse of member funds, standover tactics, kickbacks, bribes and secret commissions.
Mr Abbott said he believed the royal commission could run concurrently with court cases or police investigations without causing any problems.
Attorney-General George Brandis said a royal commission was the right mechanism to deal with allegations of widespread, systemic and ingrained wrongdoing.
"This is not a question of sporadic cases, this is a matter of a widespread culture which requires the powers and the thoroughness of a royal commission," he said.
Opposition Leader Bill Shorten, a former AWU national secretary, said if the government was "fair dinkum" it would set up a multi-agency task force led by the Australian Federal Police.
"Tony Abbott has never seen a situation affecting real people which he won't turn into a political stunt," he told the Labor caucus on Monday.
The government expects the cost of the inquiry will be much less than the $100 million spent on the Cole royal commission into the construction sector a decade ago.
Australian Industry Group chief Innes Willox said that although the Cole commission did not result in any criminal charges, it had its merits as would the Heydon commission.
"It led to a very clear shining of the light on some really poor practices within the construction industry, and led to the establishment of the Australian Building and Construction Commission," Mr Willox said.
ACTU president Ged Kearney said the inquiry was designed to weaken unions just when workers' conditions were under attack from the government.
Unions had "zero tolerance" for corruption, which should properly be pursued by police.