This is an excellent explanation.
All Australian jurisdictions have (in general) common road rules. In NSW these are enacted by Road Rules 2014 regulation under the Road Transport Act 2013.
The relevant provision is Clause 306:
306 Exemption for drivers of emergency vehicles
A provision of these Rules does not apply to the driver of an emergency vehicle if:
(a) in the circumstances:
(i) the driver is taking reasonable care, and
(ii) it is reasonable that the rule should not apply, and
(b) if the vehicle is a motor vehicle that is moving-the vehicle is displaying a blue or red flashing light or sounding an alarm.
From your statement (a)(i) and (b) would seem to apply so it becomes a question if (a)(ii) does. Well, you don't know the circumstances so you can't judge if it is reasonable that the rule not apply: if the police car were involved in a collision, caught on a red light camera or booked then the driver would have to show that it was.
It is worth noting that some road offences like drink or dangerous driving are not in the Road Rules, they are in the Crimes Act and so the exemption doesn't apply to them. It is also not a shield from civil liability although the difficulty of proving negligence goes up because disobeying the road rules is no longer enough.