Essentially, I agree with all the arguments against this system. What's interesting is that people are attacking the motive behind the proposed system because it is so terrible. One of VCE's (few) qualities is that it does reward hard work and it's easy to see students around you picking up the work load in year 11 and 12 in order to do well.
However, consider the American GPA system which runs for the last 4 years of high school education. This sort of acts to award general achievement and consistency.
I think that placing such a big emphasis on results at a young age could be restrictive and exhaustive. Kids should be encouraged to explore all facets of life and there are too many problems with the education system (teachers in particular) for this to be conducted alongside a system with the general purposes that you propose. If kids have this pressure to perform well in their schoolwork - especially in core subjects - they may well ignore other activities that will provide non-immediate benefits intellectually/socially/physically.
I've +1 Karma'd this because it's brilliant. I think the American system balances this by not focusing on so many subjects as we do. I think Harvard requires 3 subject exams to be taken, Yale requires 2 and many universities don't require any. This allows students to take up subjects out of interest without having to consider assessments and such too heavily whilst the GPA will keep students from simply ignoring them. In this way, students can explore more areas of life without the pressure.
So in part, I agree with what iNerd's system is trying to achieve, but, ignoring the fact that iNerd has no experience with VCE, it's just not well thought out. It's easy to look at our own system and think we're lucky because our years before VCE didn't count, (I know I'm particularly happy about this), but we can't deny the flaws in our education that is a result of our current system especially compared to the educational standard of America.
That being said, categorizing students for VCE is not the way to approach this issue. I'd also like to point out that James Lu is a perfect example of a person who hated the VCE system and had letters printed in the Age about it after getting 99.95. If you're going to listen to anyone, these are the type people who you should take seriously with the issues, because people who do poorly in VCE are the ones who complain and people just unfairly disregard them because of their score. I think iNerd should just wait to see what VCE is like for himself, then he/she might understand the pressure and such associated with it.
tl;dr: The system is as it is with all it's issues. The proposed system is illogical. Just deal with the current system.