If your buyer has changed their mind it is up to you if you refund postage cost or not. I would not do it as some explained in this thread it is not your fault and the postage cost has been paid already to Australia Post.

You have paid them and they have delivered.  Ths part has been done without anyone's fault and the only person who needs to pay for it is a buyer.  The buyer aslo needs to pay for retun postage to send the item to you for a product cost refund only.

If you have done a mistake in the item description or its pictures and the actual product is not as desrbied(by you) your buyer has bought your item based on the wrong details provided. In this case it is your fault and you should refund original postage and pay for return postage too.

Some say you should keep your customers happy. It imay not be your customer anymore since they ask for full refund considering "change my mind" reason. They probably never buy anything from you again. If you refund them full amount with postage because they changed they mind just to keep them happy there is a very big chanhce they may and will act the same way next time they change their mind.  It will also affect other sellers because this buyer will be bying from other selelrs and they will think that it is normal way to shop sitting on their couch at home and making  impulsive purchases and changing their mind later demanding full refunds later.

Try to look at it this way, you have paid AusPost for delivery and you have not paid them for insurance(your customer did not want it) and your parcel gone missing. AusPost will refund you postage cost but they do not care to pay you for your parcel content. They won't care to keep you happy by covering your loss which is often much more than postage cost. They have failed with their sevice only and they will refund you what they charged for it