The Turnbull government has dropped its proposal to increase fines for trade unions involved in sympathy strikes from $750,000 to $10 million.
The measure, designed to bring secondary boycott penalties in line with other breaches of competition law, has been stripped from an otherwise non-controversial suite of competition changes.
Parliament's lower house on Wednesday approved an amendment put forward by Labor, the Greens and the crossbench - minus One Nation - in the Senate on Monday.
Treasurer Scott Morrison reluctantly accepted the change to ensure the passage of other elements in the bill.
"Labor are happy to protect their union mates that break the law at the expense of small business, workers, consumers and the wider economy," he told MPs.
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Labor argued the measure was unreasonable and an industrial relations issue, not a matter of competition.
"The measure that the government sought to sneak into this bill was a measure which would've made it harder for workers to organise," shadow assistant treasurer Andrew Leigh said.
