Despite the grim assessment, Mr Latham said he had become more positive about the future of the ALP, and praised Kevin Rudd and Julia Gillard for delivering the "golden trifecta" of low interest rates, low inflation and low unemployment.

Delivering the John Button Oration as part of the Melbourne Writers' Festival, Mr Latham reiterated many points from his Quarterly Essay, called "Not Dead Yet: Labor's post-left future", and said that Labor needed "people...who confront problems free from the baggage of the left and right" in order to move forward from the scandals which had plagued the part for the majority of its time in government.

Candidates must be "selected through community primaries" and the votes of party members and local supporters instead of "sub-factional warlords", and the ALP leader should be selected "100 per cent" by party membership, Mr Latham said.

"That would bankrupt the power of the sub-factional war lords...[as] putting them out of business is the most important thing we need to do".

The former party leader was, however, scathing of a potential Liberal government, and called on Australia to brand an Abbott government "illegitimate" if he does not reveal a plan to solve "this economic emergency he's defined" soon.

"Labor didn't identify a budget emergency in May; Tony Abbott did. And once identified, he has a responsibility to solve it. And this act of deceit, this attempt to hide from the Australian people the true nature of his policy is...a denial of a democratic right, and could very much lead to the election of an illegitimate government," Mr Latham said.

Welfare will not be "wound back" under a Liberal government, despite potential Treasurer Joe Hockey calling for the "end of the age of entitlement".

"Does anyone seriously take the idea that Joe Hockey, a harmless, simple buffoon is going to wind back the welfare state? Even if [the Liberal party] wanted to, they couldn't do it. I think it's a cause for celebration," Mr Latham told the audience.

He was concerned about the rise of "rusted on fanatics" within the Liberal party, such as the "hardcore religious right", "the corporate wheelers and dealers" and the "cadre of fanatics who represent the authoritarian right wing of Australian politics", who appear to be influenced by the cultural norm of Northern European politics.

"The key is to understand where these people come from ideologically, and the danger they bring," Mr Latham said.

Small 'l' Liberalism was dead - "other than in the mind of Malcolm Turnbull" - and an Abbott government would be "a big spending government" despite its protestations of bringing in a budget surpluss.

"For the first time in Australian history, people will be compensated for a tax that no longer exists – the equivalent of bad backs on a building site, a compo-for-nothing scheme," Mr Latham said.