Stezza (and others) I understand your point that employers should not be granted special exemptions based on their religion - but you must appreciate the choice this places Churches in.
They are compelled then by law to either:
1. Pay for services they doctrinally cannot accept - either in the participation or facilitation, or
2. Withdraw from health, education, aged care, social welfare and other spheres altogether, where they cannot staff these endeavours purely on a volunteer/non-employee basis.
These appear to me to be the only moral choices available to them (short, perhaps, of doctrinal change).
The outcome could be the sale/close of all Catholic schools, hospitals etc. While some might think this a good thing you must accept it would be a massive upheaval and one which would have major repercussions.

JS Mill
how is this different from everyday Catholics whose taxes and medicare levies support abortion and birth control; quakers whose taxes pay for the armed services; vegetarians whose taxes support AQIS inspections of live animal exports; philistines whose taxes support the arts and culture ...

Rhian,

It's not different at all in principle. The things you mentioned are just further removed in the conscious chain of compulsion.

J S Mill, you are correct.

Option 2 should be chosen and any charity work provided should be on a volunteer basis. Like all change it needs to be a slow and gradual process. I believe the church should not be involved in health or education for the exact reasons we are debating this.

J S Mill you say "(Religions) Withdraw from health, education, aged care, social welfare and other spheres.....sale/close of all Catholic (and others) schools, hospitals etc." Stupid irresponsible governments of all persuasions have allowed these parasitic churches to infiltrate various stratum of society, setting up their own institutions with the purpose of peddling their particular social values and at the same time enhancing the churches power and control over society, eg just take a look at America where the 'bible bashers' control all levels of government, with their continual references to god, such tripe as "god is on our side" to justify criminal action (Afghanistan Iraq the list goes on). We in Australia claim to be a secular society, so lets be one, we should not be held to ransom by the religious, kick the parasites out, take over the institutions they control for the good of society. As for compensation, they can pray for it.

Paul - 'take over the institutions'... by the rest of your post I assume you mean it is the government that should take over the schools/hospitals/op shops/aged care/homeless shelters etc.
And I infer from your post you believe that this is something they should have done long ago.
I suppose that means that you believe there is no place for religious altruism, only humanist?
I guess that also means that you believe government would operate these services as well as - or perhaps better than - the religious?
If so, why haven't they? Because it has been saving them millions for years now - the cost of completely disbanding social services provided by the churches would certainly run into the millions - how do you think 'the government' will pay for that Paul?
Lastly, unfortunately for you 'the government' is bound by law. If the Feds want to take over these institutions they will have to do it in accordance with s 51 (xxxi) of the Constitution.