LEIGH SALES, PRESENTER: A short time ago I interviewed the Prime Minister, Tony Abbott, in his Sydney office.

Prime Minister, thank you for your time.

TONY ABBOTT, PRIME MINISTER: Thanks, Leigh.

LEIGH SALES: You said today after the leaders' meeting that this is the start of a conversation. You've been in government for nearly two years. How can it be the start of a conversation on fundamental economic reform when the problems have been there since day one?

TONY ABBOTT: It's the start of a conversation on changing roles and responsibilities within the federation. And it's an important part of the federation reform white paper which we promised going into the election and is obviously now in full swing.

LEIGH SALES: But why's it taken two years?

TONY ABBOTT: Well, we've done quite a lot over the last two years. I mean, we've scrapped the mining tax, we've scrapped the carbon tax, we've stopped the boats, we've got three free trade agreements in place, we've done a lot of budget repair. So it's been a pretty action-packed two years and it's very important that there be ongoing reform. And what I was really pleased about, Leigh, was the willingness of all the states and territories, of both Labor and Liberal premiers, to talk seriously about what we need to do as a nation, to leave the party political hats at the door, to lay down their weapons, as it were, and be constructive.

LEIGH SALES: When you take key issues though that the business community's been agitating about for quite a while: tax reform, industrial relations reform, productivity, superannuation. You've had two years and you've done next to nothing on those things.

TONY ABBOTT: Well, I utterly disagree. I utterly disagree. We are very, very eager to get the Australian Building and Construction Commission established. We are very, very eager to get the Registered Organisations Commission established because that will clean up workplace relations, it will restore the rule of law, it will apply to unions the same kind of governance standards which have long applied to companies. So, it may not be radical deregulation, but it's a very, very important part of decent workplace relations structures in our country.

LEIGH SALES: But how eager can you be, again, when it's been two years?

TONY ABBOTT: Well I reckon no-one watching this government over the last two years would say we've been standing still. I think this has been a government which has provided plenty of drama for the policy wonks, and as I said, the carbon tax: gone. When was the last time a government abolished a tax? The mining tax: gone. When was the last time a government abolished a tax? Lower taxes for small business in particular. Quite dramatic change for small business in particular.

LEIGH SALES: The West Australian Premier Colin Barnett said today that in looking at possible GST reforms, everything needs to be on the table - the rate, exemptions, online purchases and so on. Do you agree?

TONY ABBOTT: Well I'm certainly not ruling things in or out. All I want to be very straight with the Australian people about is that as far as I'm concerned, any tax changes have got to be about greater efficiency, a stronger economy overall. And what I want to do is reduce the overall burden of tax. What I want to do is see taxes that are lower, simpler and fairer.

LEIGH SALES: But specifically on the GST, are you happy to have a wholesale look at every aspect of it?

TONY ABBOTT: In the end, the GST is the states' tax. It's money that we raise for the states and it's up to the states what they do with it. Now, the states are going to drive this particular part of the federation reform conversation.

LEIGH SALES: That's passing the buck, though, isn't it? The Federal Government does have a role in setting and reforming the GST?

TONY ABBOTT: And what I'm interested in doing is trying to make our tax system as fair and as efficient and as effective as possible. There's no such thing as a tax that people like, but some taxes are more economically damaging than others, and by and large, the GST is one of the better ones.

LEIGH SALES: You've said that on some of the big issues facing the nation that you want to have a conversation, not a scare campaign. But aren't you one of the Parliament's worst offenders when it comes to scare campaigns?

TONY ABBOTT: Well we certainly waged a truth campaign about the carbon tax and the mining tax. I said in the last Parliament that the mining tax would destroy jobs and raise no revenue and that turned out to be dead right. But what I think the public are now wanting from all politicians is a serious conversation about the issues that are affecting our country. And the great thing about today, Leigh, was that people took their party political hats off, they left their political weapons at the door and we talked seriously about the problems and what we could collectively do to address them.

LEIGH SALES: Who said this: "Whyalla risks being wiped off the map by Julia Gillard's carbon tax. Whyalla risks becoming a ghost town, an economic wasteland. There's hardly a region in this country that wouldn't have major communities devastated by the carbon tax if this goes ahead"?

TONY ABBOTT: And if I may say so, and I'm not going to deny you a gotcha moment, Leigh, but if I may say so, the carbon tax did have a very destructive impact on all of those energy-intensive centres like Gladstone, like Whyalla, like Geelong and that's why it's so good that it's gone.

LEIGH SALES: But it didn't wipe them off the map, Prime Minister, and it's not a gotcha because I'm trying to establish in the context of you saying we shouldn't have scare campaigns that in the past you have been somebody who has used scare campaigns.

TONY ABBOTT: Well, the important thing, if I may say so, is to try to be as good as we possibly can be going forward. That's what we should be. We should be as good as we possibly can be going forward. And surely, Leigh, the Labor premiers are prepared to have a decent and candid conversation and I'm sure our ABC would be only too happy to do likewise.

LEIGH SALES: Well let's take another example. You recently said that Islamic State is coming for every one of us. That's not fear-mongering?

TONY ABBOTT: It's exactly what Daesh or ISIL says it wants. It is every other day putting out messages to its supporters and sympathisers in countries like Australia, saying, "Go out and kill the unbelievers." That's what they say. That's their objective. I mean, the whole point of a caliphate is universal dominion. We need to be very conscious of the fact that this is exactly what they want to do.

LEIGH SALES: There's only about 30,000 of them. How are they coming for every one of us?

TONY ABBOTT: Well you ask the people who have been - or the relatives of those who have been crucified, beheaded, sexually enslaved, executed in their hundreds and in their thousands about the benevolence of this evil death cult. That's what it is: it's an evil death cult. And the message of this death cult to everyone, anywhere is: submit or die. And that's why it's so important that it be resisted at home and abroad.

LEIGH SALES: But people such as the US President Barack Obama, his National Security Advisor Susan Rice have said that the threat should be kept in perspective. Is calling it an evil death cult and saying it's coming for every one of us keeping it in perspective?

TONY ABBOTT: Well funnily enough, President Obama himself has called it a death cult.

LEIGH SALES: If you're right and the threat is so grave and that they are coming for every one of us, is it not negligent for you then as the Australian leader to be only committing fewer than 1,000 non-combat troops to take on this threat?

TONY ABBOTT: Leigh, obviously, we are working with a coalition of partners, a lot of Middle Eastern countries as well as Western countries, and we are making a strong - a very strong contribution, certainly a more-than-proportionate contribution. In terms of troop numbers, I think we're the second-largest contributor after the United States. And while our air element is probably only fourth or fifth in terms of proportionate size, it's doing extremely effective work. Our refueller is doing great work, our AEW&C aircraft is doing great work. The advice I get is that, of all the various aircraft of its type, our AEW&C is programs the most effective in theatre.

LEIGH SALES: But if IS were coming for every one of us, would we would not be putting every resource available that we had into that fight?

TONY ABBOTT: Well we can't save the world single-handedly. We can't do too much on our own. The important thing is to be working effectively with our partners. The important thing is to be making a strong and proportionate contribution and I think that's exactly what we're doing.

LEIGH SALES: Just on the big picture again of working together, Labor announced last night that it would embrace your turn back the boats policy. That would've been a bitter pill for Bill Shorten to swallow and he's risking some political capital ahead of his national conference this weekend. This morning the Immigration Minister Peter Dutton was commenting on it and he's called Mr Shorten weak and a fraud. So, even when Labor's adopting your policies, you can't be magnanimous.

TONY ABBOTT: Well, I'm prepared to say good on Bill. I just wish he'd done it two years ago. I just wish he'd done it when he was in government, because if he was in government, up to 1,000 people might not be dead. Up to 50,000 people might not have come to Australia illegally by boat. We might not have had the $11 billion budget blowout that we did because Labor refused to do what was always the right thing here. My problem is not this 11th-hour change of position; my problem is: do they really believe it? Because as we know, to make these policies work, you can't just say you support them, you've got to actually believe it in your heart and soul and I'm not sure that too many people in Labor do.

LEIGH SALES: On the Bronwyn Bishop helicopter flight, she's said that she acted within the rules, although everyone from you down has agreed that it was inappropriate.

TONY ABBOTT: An error of judgment.

LEIGH SALES: An error of judgment. Do you think then that the rules do need to be reviewed and looked at?

TONY ABBOTT: Leigh, look, that's a fair question. We've certainly already changed the rules since coming to government. We stopped politicians from travelling first class overseas. We made it much more restrictive when you've got, if you like, family travel within Australia and indeed overseas. We imposed 25 per cent penalties for claims which turn out to be misjudged.

LEIGH SALES: We still keep seeing these errors of judgment though from time to time, which begs the question: are politicians actually out of touch with community expectations on these sorts of things?

TONY ABBOTT: Sometimes people will make mistakes. No doubt about that. People do from time to time make mistakes. But the point here is that the justifiable uproar in response to Bronwyn's error of judgment should be a very salutary lesson to all of us in public life: make sure that everything you do is publicly defensible and make sure that your constant focus is on doing the right thing by the people of Australia.

LEIGH SALES: Is there a broader problem for your government here in that when you put some of these things together such as Bronwyn Bishop's helicopter flight, Joe Hockey telling people that housing affordability's not a problem if you've got a decent job, the Prince Philip knighthood, that it gives the appearance that your government is in a bubble and out of touch?

TONY ABBOTT: I'm sure other people might make these claims, Leigh, and I'm not saying that everything that this government has done has been perfectly pitched, because we're all human. Let's face it: we all make mistakes. But, if you actually look at the Government's record, if you actually look at what we've done, we've got rid of the carbon tax, the hated carbon tax, we've got rid of the mining tax, the misjudged mining tax, we've stopped the boats, we've got these three free trade agreements in place and they're important economic reforms, I hasten to add. And now we're prepared to enter into a very frank and candid discussion with the Australian people about what they want to do with the federation, including potential changes to the tax mix. Now, I think this is exactly what governments are elected to do.

LEIGH SALES: Since the leadership spill earlier this year, after which you said, "Good government starts today," the Government's poll numbers have remained in an election-losing position. The Budget didn't help turn that around. Other than going to an election and losing, when will you judge that your time as Prime Minister is up?

TONY ABBOTT: Well, my job is to do what I was elected to do and that's what I'm doing every day, Leigh.

LEIGH SALES: But sometimes, as you know, in politics, as a student of politics, it becomes difficult to do the job that you would like to be doing because circumstances change or you don't have cut-through or whatnot. I'm just wondering for yourself, what do you set as your personal test for knowing: OK, my time in this job is up?

TONY ABBOTT: Well it's pretty obvious that I'm accountable to two groups of people. First of all, I'm accountable to the electorate and then I'm accountable to the party room. Now, if either decide that they don't want me, I'm gone.

LEIGH SALES: Would you ever though yourself make the judgment that you should be gone to avoid the Coalition being in a position such as Julia Gillard put Labor in where it's very untidy and messy and they have to shovel somebody out?

TONY ABBOTT: Well, again, Leigh, my job is to do the very best job I can for the people of Australia and I am spending myself every day in that job and I think we've achieved quite a bit over the last couple of days in the COAG meeting. I think a week or so back, with Bill Shorten in terms of the Indigenous recognition process, quite a bit was achieved. I don't think you should underestimate the good things that have happened under this government and the way we have got the incompetence, the administrative incompetence and the budget profligacy that the former government left under very good control.

LEIGH SALES: Prime Minister, thank you very much for your time.

TONY ABBOTT: Thanks, Leigh.