I think what the politicians (and their news magnate overlords) wanted was a middle ground solution where aggregators and search engines negotiate something for content that is catalogued in a way that replaces a news website and bypasses that actual news website (and in some cases, their paywalls). The law makes more sense relating to Google, in particular
Google news as a service, and the news search tab that often has enough of a preview that a searcher doesn't need to read the article it links to. Which perhaps is why Google have come to the table and started negotiating deals with various news websites to more legitimately syndicate their articles.
But as Facebook have pointed out over and over, the proposed new law has been drafted with a very wide catchment and probably in such a way that it purposely fails to clarify what 'news' is effectively. And is loose enough that posts on Facebook by news providers themselves, and shared posts by random Joe public are also caught. Facebook could end up having to pay millions to News websites who share material themselves on their own Facebook pages.
But as I suggested in the OP. Facebook might have justification for their position. But their response has been nothing short of blunt, and by being so broad in their description of news (to make their point clearly) they have alienated a lot of the people they were hoping would pressure the government into not passing the law in it's current state. Especially harmful were blocks on government information services about Covid and wildfires at the height of wildfire season. They have made it really easy for the government to couch this issue in patriotic terms and win over the public even though the government is probably in the wrong. Facebook, by subjecting an entire country to an arbitrary and collective action, hoped to make the public pressure their politicians, instead they have pulled back the curtain and have made it impossible for governments anywhere in the world to pretend that Facebook don't have power and leverage. Ultimately this could actually accelerate legislation against them elsewhere.
The ultimate irony, is that as-of this morning, you can't receive emergency weather notifications through Facebook, or any of it's apps or services, but articles that are 'fake news' are largely unaffected. As one news website was quick to point out, one Covid vaccination service that was using Facebook to publish it's open hours and procedures was blocked, while paid anti-vax websites reached broad audiences. Facebook have over-played their hand by literally placing people's welfare below their business goals.