negative multiplier effect of misconnected passengers everywhere else in Australia due to aircraft being late
They do. But on the premise of which crowd to disappoint, it comes back to the original argument.
It helps a lot in that said person making the decision doesn't have to deal with the fall out. They quote the law and rationale; the airlines take care of the mess. If they had gone the other way then
they (the decision maker) has to deal with a mess, which is not as easy as paying people off.
An affected misconnected pax or someone who is further afield affected by delays is unlikely to have a strong influence on the decision maker.
loss of business to SYD airport, overloading of already creaky nearby infrastructure like roads/rail/hotels etc, all the economic losses incurred by the airlines whom then pass those costs back onto passengers, extra fuel burnt by arriving and fleeing/diverting aircraft. Someone has to pay for all these productivity losses.
The "loss of business" argument is difficult to really take into account, because often it is actually a "loss of opportunity" rather than hard, already-established business. And with any "opportunity cost" (whether it's opportunity for benefit or opportunity for loss), the numbers can be quite inflated (e.g. the predicted usage numbers for Brisbane's two toll tunnels

), especially when it's put out there as a pitch more than a reasoned argument.
Until real business losses are seen, "loss of business" is at best a risk rather than a consequence. And even when it gets to that point, there will be a difficult time establishing whether it is the lacking infrastructure which has caused said losses (causality).
It's also unlikely to happen because Sydney is just the centre of, well, everything. Which of the carriers are going to reduce services to Sydney first to give themselves more breathing room in case of delays? If anything, they want to
increase services to Sydney. No one can really stop flying to Sydney.
In the end, all these productivity losses are paid for by the airlines. The minister / decision maker is simply bowing to the demands of the people he/she is responsible for and is happy that there is no mess to clean up in that regard. If IRROPs cause airfares to go up, again the decision maker has no "blood on their hands". Indeed, the residents may be relieved to hear about prices going up, as it may discourage flying to Sydney, giving them more peace and quiet. Do you think those affected residents who care about the curfew and want 7 hours peace and quiet give a damn about any of the other tangible or intangible consequences you've mentioned? In a pig's eye they do.
Finally, let's be brutally honest here. If this kind of incident happened every week (God save the weather, for a start),
then we may have to really think of a solution. Happens maybe twice, five times a year? No big deal (this is the "**** happens" justification).