Government Should Be Viewpoint Neutral
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Fragment of a discussion from Comments:Sydney plans loss of rainbow
The "gay rights" vs. "gay is immoral" argument is rather widely known. I understand you'd not like it to be flamed about here.
I will discourage interpreting this news as a ground for painting government as a body which always opposes gay rights. Government is here to protect society and if you think it erred in its judgment, there is the courts system to look into it.
I'm familiar with the Australian courts system and law and personally find that painting roads for the sake of freedom of speech, while amusing, isn't a very easy thing to classify as a right guaranteed by the Australian constitution. I would personally find that it isn't, and sets a dangerous precedent for future cases, as next court cases rely on common law heavily.