Prime Minister Scott Morrison has angrily denied cutting $1.2 billion in aged care funding as he announced a royal commission into the sector.

“If people want to put questions, they are not allowed to put lies,” Mr Morrison told a journalist on Sunday who asked about the cuts.

The Prime Minister went back and forth with the reporter, as he insisted he had not, as treasurer, presided over the funding cuts in the 2016 budget.

“This is why I’m having a royal commission because I’m not going to put up with lies being told about what’s happening in the aged care sector,” Mr Morrison said.

“Policies must be based on facts, not the facts that are dreamt up, not facts that are misinterpreted, not the facts that have agendas sitting behind them.”

However, the 2016 budget said the government would “achieve efficiencies of $1.2 billion over four years” from federal funding paid to aged care providers.

Page 101 of paper No. 2 from the 2016 budget.

Mr Morrison did not explain how this was a “lie”.

He may have been referring to the fact that some parts of aged care received small boosts in funding in that budget, such as $137 million for the My Aged Care web portal. The combined effect was a cut of $902.7 million in federal aged care funding over five years, according to health department estimates at the time.

Aged care industry bodies warned at the time of the 2016 budget that the cuts could result in worsening standards of care.

The Prime Minister’s announcement of a public inquiry into aged care came hours before the ABC was to air the first of two Four Corners episodes investigating scandals in the sector.

Aged Care Minister Ken Wyatt, who stood next to the Prime Minister on Sunday, was forced to explain why he had told Four Corners just weeks ago that a royal commission was not needed, as it would only tell the government what it already knew.

“I said I would rather spend the money on frontline services rather than a royal commission at that point, but … I gave reconsideration to the need,” Mr Wyatt said on Sunday.

Scores of disturbing cases of abuse, neglect and understaffing have come to light in recent years, through the work of government reports, media investigations, concerned family and whistleblowers.

At the media conference, Mr Morrison recited a string of troubling statistics, including a 177 per cent increase in the number of aged care homes where a serious risk to residents was found in the last financial year, and a 292 per cent rise in the number of facilities that refused to comply with regulatory rules.

“We should brace ourselves for some pretty bruising information about the way our loved ones, some of them have experienced some real mistreatment,” he said.

“That’s going to be tough for us to deal with, but you can’t walk past it.”

The royal commission’s terms of reference are yet to be finalised. It will run until at least the second half of 2019, Mr Morrison said.

Labor said it supported the calling of the royal commission, but criticised the government for not calling it sooner. This was despite the fact that Labor leader Bill Shorten said in June that he was unsure “if one is needed”.

Labor insisted Mr Morrison had cut $1.2 billion from aged care funding.