They’re not saying “We won’t” they’re saying “We Can’t”. Doing so would basically undermine their entire business model and make them just like every other SMS app out there.
I just recently started using Signal after seeing Tom’s video on it. So far I really like it. Except when my wife texts me back after a couple of hours with “Ok” and I have to ask “Wait, what did I ask?” 
I loved that the Signal blog post was titled " Setback in the outback" https://signal.org/blog/setback-in-the-outback/ and yes, this will be an issue for tech companies operating in Australia while trying to navigate this new and not so well thought out law.
Also, I have the messages with my wife set to 24 hrs to help keep some context to the conversation.
Are they saying they have a release for the Australian gov’t, and a broken version for the public?
No, they are saying they will not do that.