[MannoFr]

I think they would argue that:

1) It is in the public interest, and

2) They aren't forcing you to drink the water from the council water supply.

It does not matter what they may say, the Australian Constitution states that they cannot do it, therefore it is illegal.
The case would be a slam dunk and should be over in five minutes. Simply open a copy of the constitution to the relevant page and point to the clause.
There is no room for argument.
I wish that I had the money to pursue such an action.
After that I would go after the provision in the Tax Act which states that we are all guilty until we prove that we are innocent. This is contrary to the foundation of British (and therefore Australian) law.
Then there are the racial vilification laws, which are a violation of international treaties that Australia has signed on human rights and political freedom.