Mr Latham - who led Labor to defeat against former Liberal prime minister John Howard in the 2004 federal election - made the announcement via Facebook, and immediately sparked speculation a return to politics might be on the cards.

"I support 80 to 90 per cent of the Liberal Democrats platform, pretty good for someone with strong views formed over a long period of time," Mr Latham said on Facebook. "So I have joined up and want to play a role in fighting for our national values, based on personal freedom and responsibility."

The thought of having both Mr Latham and Mr Leyonhjelm in the next parliament was immediately dismissed by senior Liberal figures in Canberra, who pointed to the fact the Liberal Democrats leader only has a three-year term in the Senate, and will have to go to the polls at the next election.

"I'd suggest that Leyonhjelm would know he can't get up this time," the senior figure told Fairfax Media.

"The first time was a freak occurrence, the second time was a double dissolution election with half quota. Next time time would be close to impossible for him."

The Liberals rate Mr Latham a better shot at success than Mr Leyonhjelm. "This could mean that he [Leyonhjelm] can retire undefeated, and Latham would have a real shot at the next election."

Liberal fears of Mr Latham running in NSW were heightened when an invite from former Liberal MP Michael Yabsley landed in their email inboxes. Mr Yabsley is hosting an event featuring Mr Latham and radio presenter Alan Jones as keynote speakers at his Wombat Hollow property in NSW on May 28.

Mr Leyonhjelm said a potential return to politics was "like getting married a second time - it's a triumph of hope over experience".

"(Mark Latham) said, he had already done that - gotten married a second time - and he's much better at it," Senator Leyonhjelm said. "I think there's a thought in the back of his mind, that he might like to get back into politics but he hasn't raised that with the party."

Senator Leyonhjelm acknowledged Mr Latham came with some baggage.

"He's quite a gentleman, as a matter of fact, he and I get on very well," he said.

"We've got a fair bit in common, but I've never broken a taxi driver's arm that's for sure. I don't get into blues if I can avoid it."

Mr Latham was sacked as a commentator on Sky News Australia in March. He's also been criticised for remarks about fellow Sky News commentator Kristina Keneally and ABC radio presenter Wendy Harmer.

Senator Leyonhjelm insisted Mr Latham's controversial views on women had suffered a degree of "misinterpretation".

With all eyes on Treasurer Scott Morrison and Tuesday's budget, the Canberra rumour mill is in full swing in the background, with several senior Liberal Party figures privately questioning the appointment of 32-year-old Andrew Bragg as acting federal director.

Mr Bragg was given the job last month by Prime Minister Malcolm Turnbull following the resignation of stalwart Tony Nutt.

Mr Bragg is expected to receive a permanent appointment next month, but many in the party are concerned that a 32-year-old who has "never run a state or federal election campaign" could lead the Liberals' organisational wing into a crucial campaign.

"All through the toughest times in the party, with what happened to [Brendan] Nelson, [Tony] Abbott and with [Malcolm] Turnbull, the party has always had an experienced campaigner in the background," one senior figure said.

"Bragg might be the loveliest guy, the smartest guy, but he has never run a state or federal election campaign, or run the machinery of a major campaign, even as a deputy. That is a worry for many in the party," he said.

With AAP

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