SARAH FERGUSON, PRESENTER: Labor leader Bill Shorten is riding a wave of sudden popularity after the Budget.

But on the weekend, Mr Shorten was rolled by his own colleagues in his home state, Victoria, on the critical issue of Labor Party reform. Powerful left- and right-wing unions joined forces to defeat changes designed to weaken unions' stranglehold on the party.

Louise Milligan reports.

CATH BOWTELL, VIC. ALP PRESIDENT: My privilege to ask you to make very welcome the Federal Leader of our Parliamentary party...

LOUISE MILLIGAN, REPORTER: The dilemma facing Bill Shorten was plain to see as he waited to address the party faithful at Victoria's ALP conference yesterday: how to turn the Government's misfortune into a win for him.

Ahead in the polls, buoyed by an overwhelming reaction against an unpopular Budget, the Opposition Leader slated the Abbott Government to enthusiastic applause.

BILL SHORTEN, OPPOSITION LEADER: But how dare you say that somehow a cure to cancer is dependent upon wrecking Medicare? That is wrong!

(sound of applause)

LOUISE MILLIGAN: But Mr Shorten also needed to cement his image as party reformer.

BILL SHORTEN: We cannot shirk the task of modernising the party. We cannot shirk the task of being a party which genuinely practices what it preaches for the nation of Australia.

LOUISE MILLIGAN: Bill Shorten has built his leadership on the promise of reforming his party to dilute the influence of unions and give rank-and-file a greater say.

But it provoked rowdy debate on the floor of conference.

CATH BOWTELL: Delegates. Delegates.

CONFERENCE ADDRESSER: Delegates...

(sound of delegates booing)

CONFERENCE ADDRESSER: I appreciate your passion, delegates. I love your passion.

(sound of delegates booing)

CONFERENCE ADDRESSER: Your passion's great.

CATH BOWTELL: Okay. All right. Delegates...

DELEGATE: Give the young bloke a go. The fact that 60 per cent of our bloody party down here's left over with retards like myself in our 70s, for Christ's sake, how long are we gonna run it? Give the bloody young bloke a go, right?

(applause)

LOUISE MILLIGAN: After a public backlash against unions, Mr Shorten had pushed to weaken their stranglehold on Labor's central selection panel.

PROTESTERS: The workers united will never be defeated!

LOUISE MILLIGAN: He wanted to bolster the weight given to the vote of local branch members in candidate selection. The proposal never saw the light of day.

There's a big show of support for Bill Shorten now but behind the scenes the comrades have been furiously working the phones, trying to strike a balance between his reforms and protecting their power bases.

And protection won out. Once warring factions of the ALP united, voting essentially to defeat their leader by watering down his proposed reforms.

CATH BOWTELL: All those in favour of adoption of this change to the rules say aye.

DELEGATES: Aye!

CATH BOWTELL: Those against say no.

DELEGATES: No!

CATH BOWTELL: I call that lost.

DELEGATE: Count!

LOUISE MILLIGAN: Mr Shorten, the proposals that you were going to bring to this conference, for example the 70/30 rule, have been either watered down or deferred until March 2015. Isn't that a bit of a loss for you?

BILL SHORTEN: The Labor Party's got to continue to change. That's inevitable. The path of rebuilding: it can't be done in one day or one weekend.

LOUISE MILLIGAN: Also deferred was a plan to allow branch members a say in electing the State leader.

Party sources told 7.30 that supporters of Victorian Labor Leader Daniel Andrews, who faces election in November, vigorously lobbied against the proposal.

Has there been a tension between you and Daniel Andrews and your respective offices because of your different stages in the electoral cycle on this internal party reform question?

BILL SHORTEN: What matters to Daniel Andrews is the best interests of Victoria. What matters to me is the best interests of Victoria and, indeed, the nation. I'm a parent. My kids go to schools. I know that Tony Abbott's going to cut funding to schools.

LOUISE MILLIGAN: Sure, but we're not asking about Tony Abbott. I'm asking about what has been going on with you and Daniel Andrews. Has there been a tension between you on this question of internal party reform?

BILL SHORTEN: As much as some people would seek to divert my attention from holding Tony Abbott to account, the days of Labor disunity are behind us.

LOUISE MILLIGAN: But that wasn't how it seemed on the floor. A third proposal to combat union power, allowing team to join the ALP online, was also diluted, capped at just 20 members per branch per month.

MICHAEL DONOVAN, SHOP, DISTRIBUTIVE AND ALLIED EMPLOYEES ASSOC.: The ALP is so good at shooting itself in the foot! Whenever we do something good, somebody runs out into the media and tells everyone how bad we are. So everyone voting for us knows we're really, really bad. Well, we're not bad.

NICK REECE, PUBLIC POLICY FELLOW, UNI. OF MELBOURNE: The paradox with reforming a political organisation is that those who have the power don't want to give it up. But in order to achieve the reform, you need the people in power to accept the case for reform.

LOUISE MILLIGAN: Former Victorian ALP secretary Nick Reece was also a staffer for Julia Gillard. He's watched the unstoppable decline in party membership with dismay.

NICK REECE: Australian political parties have the lowest membership in the world. Collingwood Football Club has more members than the Labor Party, the Liberal Party and the Greens combined.

LOUISE MILLIGAN: But a former Foreign Minister and New South Wales Premier, Bob Carr, says the problems with the ALP won't be fix bid Bill Shorten's attempts at party reform. He believes it's about leadership or lack thereof.

BOB CARR, FMR FOREIGN MINISTER: And I tell you what: a bottom drawer full of killer arguments directed at your opposition counts a whole lot more than endless tinkering with the party structure.

LOUISE MILLIGAN: He wants the party to recapture the mobilising power of bold leaders past.

PAUL KEATING, PRIME MINISTER (1992): Mate, because I want to do you slowly. I want to do you slowly.

(laughter)

BOB CARR: The next phase has got to be reaching out to the public and like a Wran, like a Whitlam, like a Keating: winning debates with sizzling one-liners, mobilising the killer facts to win the policy arguments.

LOUISE MILLIGAN: But many in the Labor Party say you won't find those great leaders if you don't radically change the party first.

GEOFF LAKE, MAYOR OF MONASH, PARTY DELEGATE: There are some people in our party who stand to lose from a bigger and more open party. The entrenched branch-stacking interests within some parts of our party is the interest that will be watered down if more normal Australians become members of the Labor Party.

SARAH FERGUSON: Louise Milligan reporting.