If Google threatening to leave can undo the law, than Google knows they can threaten it again and again, any time they don't get what they want. Stand firm, Australia. Let them leave. You'll be better off without these bullies in your country.
In Aus there are basically 2 media companies that control the majority of distibutions (News Corp and Nine Entertainment/Fairfax) and with that, they exert a worrying high level of influence on local politics. So this isn't really a fight between our government and google, our government is just being used as a tool. I think there's probably a middle ground that would make both sides happy but unfortunately the media here are able to push the government much harder than they should.