Internet filtering
Democratic governments create laws that in an ideal world, enforce a collective minimum moral standard that the majority of society agrees with. Ideally we trust this minimum moral standard reflects what society agrees with due to the fact that governments must be elected by a majority of people.
It is widely accepted by the general public that the Australian federal government may enforce these laws and it is widely accepted that the Government rates and "filters" media such as film, television, and computer games. In general, I agree that it is appropriate for the Federal government to impose a minimum moral standard on what can media can be consumed especially by our children.
Furthermore it is public knowledge what is being censored, assuming the censorship body was corrupted, an election could theoretically be won or lost based on a unreasonable or inappropriate censorship decisions.
Secret censorship
The first problem I have with the Australian internet filter, is that the Australian government wants to make it secret which things should be filtered and for what reasons. This is fundamentally undemocratic as the government wants the ability to enforce a moral standard that may or may not represent the public.
Technically unfeasible
The second problem I have with the Australian internet filter, is that it is actually not technically feasible to filter the internet in such a way that it would prevent illegal activity. Hence attempting to filter the "internet" is simply a huge waste of time for the most part.
The reason it is technically unfeasible is simple for even a non technical person to understand. Have you ever sent an email? Have you ever added an attachment to your email? Did you know it is possible to get software that will encrypt your email attachment such that no one else can read it unless you want them to? Even if your content is strongly encrypted, it is possible for police to eventually un-encrypt your email contents but it is not as easy and quick as they make it appear to be on TV.
On top of this any programmer with a reasonable level of competence can write software that allows you to bypass ISP's email and web servers, so that you and securely communicate directly from person to person. The only way to prevent usage of this sort of software would be to ban usage of all software except software that is pre-approved by the government.
Conclusion
In the same way I want our government to make sure that nobody can open a shop front in our apartment building selling kiddy porn, assassinations for hire, or nuclear weapons, I am very happy for our government to prevent an internet version of those same stores. However attempting to add a "filter" to the internet will achieve very little except transferring government funds into the pockets of people attempting to sell hardware and software that claims to be able to achieve filtering.