THE Rudd Government is planning a major Peter Costello scare campaign focusing on his "industrial relations baggage", amid growing speculation the former treasurer will lead the Coalition to the next election.

As Mr Costello returned from a family holiday in the Pacific, Labor strategists yesterday were finalising an industrial relations dossier with which to attack him if he replaces Brendan Nelson as Opposition Leader.

Labor fears that Mr Costello, who delivered 12 budgets under the Howard government, would pose a greater threat as Opposition Leader than Dr Nelson, who has been dogged by leadership questions following a series of bad poll results and his clumsy handling of the emissions-trading debate.

A senior Labor source said the approach would be to remind people at every opportunity that "Peter Costello has devoted his life to arguing for extreme industrial relations laws".

"Peter Costello is a bloke who said WorkChoices didn't go far enough," the source said. "This is a great opportunity for us to return to WorkChoices - we made huge gains in the last year before the election on this issue and by focusing on Peter Costello, so we would relish the opportunity to go head to head with him. The Liberal Party obviously has a very short memory."

The comments came as a beleaguered Dr Nelson claimed he had the full support of his party and said he had no plans to discuss leadership with Mr Costello over the weekend.

"Peter Costello has earned the right to make the decision about his future with his own family, in the best interests of both them and the people of Higgins," Dr Nelson told a NSW Liberal Party State Council meeting at Homebush yesterday.

"I would be very happy for Peter Costello to stay on in the Parliament, and if he chooses to do so, he will be immediately on the frontbench. But that's his choice, his decision, and he'll make it in good time."