I was unaware of the system being in place in Australia. If practical, it sounds very good. But some of the downfalls you mention are worth bringing to the discussion table.
"When people sign up they put down their preferences for which uni to attend and the universities start at the top of the pecking order (best grades) and work their way down till their quota is finished."
This, in particular, I have a problem with. I understand it is a practical solution to the problem of too many applicants that I mentioned. But right now in the US, you can choose where you want to go, if you can pay. I understand that many universities do limit their attendance regardless of money factors (i.e. Harvard), but many others do not.
I see so many complications inherent with choosing this path, and whether the outcomes are good or bad is hard to say without careful consideration. Our schools have struggled for a long time with good standards of testing. How do you prove the merit of students? You test the crap out of them. Does this work? NO. My brother is a teacher. Perhaps the Aussies have figured out a way around this issue. But I don't like the federal government dictating how education should work. It isn't working, and more is not the solution.