This means that a party on the left will allocate it's first few preferences to other parties on the left and a party on the right will allocate it's first few preferences to other parties on the right, unless these parties are extremely radical in which case they usually fall to the bottom few preferences.
Senate representation is proportional so that in a simplified election of 5 seats 20% of the vote wins a seat. Proportional representation combined with preferential voting leads to outcomes where fringe senators are elected with less than 2% of the primary vote.
Australia is an effective two party state where elections are generally won by low margins. Control of each house, particularly the senate, often depends on pandering to the whims of fringe parties who hold the balance of power. This, combined with attempts to frame policy so as to draw fringe voters back to the two major parties, results in government policy which seems out of place in a modern democratic socialist nation.
This is one such policy.
Edit: It's worth mentioning that at present both sides of federal politics are chasing the so called "values voters" and are involved in a pissing match to prove who is the most Christian conservative.
Couple mandatory voting with the vast disinterest in politics by the majority of the electorate, and you have the Australian government. I sometimes wonder why our society isn't in more disarray.
I have found that if you forget to vote in a local election and give the reason for not voting as "explosive diarrhoea" then you are excused.
You can read more about this wonderful group here http://www.familyfirst.org.au/Policies.htm
Some things they oppose include abortion, euthenasia, cloning, needle exchange programs for drug users, unfiltered internet pornography...
It saddens me that our current politicians do not see the damage such policies will have in the future. They are trading our future freedom to ensure their current political aspirations are met.
It may also be worth noting that since the last change of leadership the Liberals[1] went through, we now have an opposition leader who is Roman Catholic (his nick name: "The Mad Monk") and a Prime Minister who is Anglican. This despite a statistic I heard the other day claiming that 9% of Australians actually attend a church on a weekly basis. Fortunately Australian politicians - even the religious ones - tend to retain a greater degree of practicality when it comes to combining religion and politics; compared to what I see from the US. But the fact that we have two guys who are openly religious at the helm has got to factor in somewhere.
I might also point out the relatively recent appearance of such groups as the Australian Sex Party, whose establishment seems to have been a reaction to the apparent ascendancy of this ultra social conservatism that we're seeing right now in Australian politics. Google the obvious keywords if you're interested. From memory, the home page of the Australian Sex Party is marginally NSFW.
[1] Our further right-wing party is known as the Liberal Party... I'm pretty sure this was done solely to confuse Americans. :P
Maybe government corruption is rampant? IIRC in Italy there is a lot of corruption in the government, but people just accept it as a fact of life.
Police corruption was rife in New South Wales which resulted in the Wood Royal Commission http://en.wikipedia.org/wiki/Royal_Commission_into_the_New_S... and also in Queensland see the Fitzgerald Inquiry etc. http://en.wikipedia.org/wiki/Joh_Bjelke-Petersen#Fitzgerald_...
Current government policy is generally not the result of corruption.
http://en.wikipedia.org/wiki/Victoria_Police#Recent_history_... http://en.wikipedia.org/wiki/Western_Australia_Police#2002_R...
For the answer to that I think you might want to study the "classics": rhetoric and the Roman Republic ~ http://en.wikipedia.org/wiki/Roman_Republic You will find all the answers there. Legacy seen through the lens of history has a way of sorting the barbaric from the visionary government.