Small business lobbyists fear the Abbott government has pushed controversial competition law reforms “out into the never never” because it could not resolve deep divisions within its cabinet or stare down “the big end of town”.

The changes were the second item on Tuesday’s cabinet agenda and ministers had received a slide presentation from the small business minister, Bruce Billson, about the so-called “effects test”, which has deeply divided cabinet and pitted the biggest companies in the country against the small business “engine room” that the government courted with its “have a go” 2015 budget.

Many senior ministers are opposed to Billson’s determination to change the law to better protect small business – as recommended by the government’s recent review. The deferral, announced by the prime minister to the surprise of his cabinet and advisers, may mean the big business lobby wins the debate by default.

“I really fear this has been pushed into the never never,” said the chief executive of the Council of Small Business of Australia, Peter Strong.

“The big end of town have thrown everything they’ve got at this. But the government had to answer a simple question: do they look after the big end of town or to they look after the economy?”

Emerging from cabinet to announce a separate decision, Tony Abbott at first denied that the effects test was on the agenda, and then said it had been delayed.

“There will be a discussion about the recommendations of the review, the [competition policy] review, but not the effects test. That’s something that we are still considering,” he said.

Abbott had left most ministers, and big business lobbyists, with the impression that he backed Billson’s plan to implement the competition law changes as advocated by the small business lobby and some business groups.

But after an intensive lobbying campaign against the changes by big business and deep opposition from senior cabinet ministers, his comments on Tuesday were much more equivocal, emphasising all the things the government had already done for small business.

Billson was trying to convince ministers he could “appease” the powerful Business Council of Australia while still implementing the changes, to which he has given vehement public support.

He had accused the BCA of peddling “nonsense” on the issue.

Companies including Telstra, Bluescope and Qantas are understood to have joined the two big supermarkets, Coles and Woolworths, as well as Wesfarmers and the BCA in a major lobbying campaign to defeat the move, which was recommended by the Harper review of competition policy.

And several of Billson’s cabinet colleagues – including the treasurer, Joe Hockey, the attorney general, George Brandis, the trade minister, Andrew Robb, the finance minister, Mathias Cormann, and the communications minister, Malcolm Turnbull – are understood to oppose it.

Billson told Guardian Australia on Monday that it was “entirely unreasonable for big business to want to dictate the rules about how we make sure that big business does not harm consumers and the economy”.

“We should never lose sight of the fact that these laws are in place to put some bumper rails around the might of these businesses.”

The change – one of 56 recommendations from the Harper review – is also opposed by Labor, who Billson has accused of “drinking the BCA Kool-Aid”. The difficulty in passing the changes through the Senate plays into cabinet’s deliberations.

The proposed changes to section 46 of the Competition and Consumer Act would require a small business to prove that the action of a bigger business had the “effect” of substantially lessening competition, instead of being required to prove that the action had been done with that “purpose”. 

The change would also remove a section forbidding a big business from “taking advantage” of its market power. The BCA says this would significantly widen activities that might be caught by the act.

The changes are vigorously supported by small business and the Australian Chamber of Commerce and Industry, independent retailers and the National Farmers’ Federation.

The say the change would encourage, rather than diminish, competition and say the claim that it would force price rises is a “furphy”. They say Billson’s proposed changes would bring Australia into line with other countries and would create a more level playing field.