It's because the system can be misused. It was earlier reported that a test run of the system had several sites unrelated to what they said they'd block. Specifically, "online poker sites, YouTube links, regular gay and straight porn sites, Wikipedia entries, euthanasia sites, websites of fringe religions such as satanic sites, fetish sites, Christian sites, the website of a tour operator and even a Queensland dentist."
By putting this system in place, it allows the government to regulate exactly what it wants the Australian public to see on the Internet. Which pretty much goes against what the Internet has become.
It's true, the government has control over what we can and can't see. Unfortunately, this is going to be compulsory. Instead, I think it would be better if the option of blocking such sites was made more apparent so people knew it existed, instead of taking the "blanket" approach.