In a sworn statement to the royal commission into trade unions, Mr Kernohan who was president of the Victorian branch of the union at the time, said Mr Shorten told him in 1996 to ‘‘think of your future’’.

“He said, ‘If you pursue this, a lot of good people will get hurt and you will be on your own. Look Bob, you’ve been lined up to take a safe Labor seat of Melton in the Victorian Parliament,” Mr Kernohan said in his statement.

A spokesman for Mr Shorten said: “As Mr Shorten has said repeatedly, these claims are completely untrue.”

Mr Kernohan broke down as he told the royal commission on Wednesday he had been served a subpoena in 1996 over a cheque made out to him by former union official Bruce Wilson from the Members’ Welfare Account. The money was a payment to reimburse his election expenses.

Mr Kernohan said he was horrified to learn of the “whole sorry saga of the fraud” perpetrated by Mr Wilson, who in 1992 established a secret slush fund in collaboration with self-confessed bagman, Ralph Blewitt. The fund, the Workplace Reform Association, was used to issue sham invoices to the Thiess construction company for safety services never provided for the Dawesville Channel project near Perth.

It is also alleged money from the fund was used to buy a house for Mr Wilson in Melbourne at Kerr St, Fitzroy.

Jeremy Stoljar, counsel assisting the Royal Commission into Trade Union Governance and Corruption, has said Mr Wilson should face criminal charges.

Mr Kernohan told the commission he knew nothing of the extent of allegations against Mr Wilson until March 1996 when he was served a subpoena over a cheque for $6500 he received from the AWU Members’ Welfare Account.

He said he was ‘‘horrified’’ when he learned of the extent of the slush fund scandal.

Asked whether he had received any payment from Melbourne lawyer Harry Nowicki who is writing a book on the Australian Workers Union, Mr Kernohan said Mr Nowicki had paid for a return airfare to Sydney to attend the royal commission.

Mr Kernohan said Mr Nowicki contacted him in August 2011, before the federal election.

‘‘I could see what Julia Gillard looked like according to the polls and so forth, looked like being elected by the people as Prime Minister, well, that horrified me,’’ he said.

Builder Athol James, who completed a series of building jobs at Ms Gillard's Abbotsford house, including the installation of bi-fold doors in 1992, said she had told him Mr Wilson was paying for the work.

Mr James said he was never paid in cash and that Ms Gillard paid him by cheque.

Wayne Hem, a former records keeper for Australian Workers Union, told the royal commission Mr Wilson gave him $5000 in cash and told him to deposit it into Ms Gillard's bank account.

Mr Hem said at the time he "did not know if the account was her private account or business account or a Slater&Gordon account". He presumed the money was for payment of work done at the Abbotsford house because renovations at Mr Wilson's Kerr Street property in Fitzroy had been completed.

Ms Gillard has said she was confident she had paid for the renovations on her house.