The law for offensive behaviour is not seldom imposed, it actually comprises almost more than 30% of the summary offences that appear in the local courts.
It would be impossible to produce a list of words that constitute 'offensive language', since the notion of 'offensiveness' is itself contingent upon the values and beliefs that society hold within a given context and, as we all know, this shifts with time. In conferring onto police the power to issue infringement notices on the spot, there would arguably be too wide of a discretionary power; endowing them with the prerogative to determine what is 'offensive'. If the courts themselves can't give a definitive and conclusive answer on when particular tasteless words or profanity are offensive, then how can we expect the police to?
EbonyTW was right, there was a case a few years back where the accused was let off despite calling the cops a 'fucking cunt'; since the magistrate himself (or was it a her? can't remember) had decided that the words, in their given context, would not offend a reasonably tolerant bystander and that such profanity was now somewhat, a part of everyday language in society. Had the case been in Victoria, and had this law been introduced, then most likely the accused would have just been issued with an infringement notice and would not have been let off, per se.
My two cents is that due to the impracticality of the bill, it won't pass through.
It's not that the law shouldn't exist, offensive language should be outlawed to some degree, rather police shouldn't be given the power in determining what is offensive or not, they are the most likely to be susceptible to abuse of power.