A $250,000 settlement for workers who were underpaid at the Peter MacCallum cancer hospital was used by the Health Services Union under Kathy Jackson to kick-start a ''slush fund'' that allowed her to use the money for her political and personal purposes, an inquiry has been told.

Evidence to the royal commission on trade unions from the former HSU No. 3 branch book-keeper, Jane Holt, detailed how $284,500 was transferred from the HSU into Ms Jackson's fund, the National Health Development Account (NHDA).

Damned: Kathy Jackson diverted $250,000 of workers' money into a slush fund, the royal commission on trade unions has been told. Credit:Louise Kennerley

A former member of the union's committee of management, Kate Wilkinson, told the royal commission the committee passed a resolution approving the ''earmarking of the Peter Mac money'' as a fund that could be spent by Ms Jackson on a ''discretionary basis for union purposes''.

That included ''advancing the industrial and political interests of the union''. It also authorised Ms Jackson to spend it for ''her own personal purposes'' as she was not getting sitting fees for committee meetings.