I'm going to respond to the OP on each of those bolded points.
Diminishing returns kicks in when your ATAR approaches 99.95.
A number of people have alluded to this already, but I can attest that there are only two factors which determine if you get the top (and I mean THE top) ATAR. They are: scaling, and luck. In my case, I ended up with the 100.00 because I performed my best in English (which then flows indirectly to your other subjects' weighting) and Latin (once again, extremely high scaling). I knew this when I chose my subjects (based on what I was good at, and what scaled well), so to an extent I was able to "hack" my performance. But a whole bunch of my friends rolled state rankings across
multiple subjects and ended up missing out on the 100.00 by one or two .05's. Did I study harder? Definitely not. Smarter? Debatable. So therefore, the only real discriminant was luck.
If you truly follow through with it, you will make sacrifices in other aspects of your life. Social. Emotional. Spiritual, even. All your growth will be academically geared.
During my HSC year, I began my first serious relationship, swam every week, and gamed almost every second day. All this already done to death in my AMA. This also fits with my point about scaling and luck (though of course you need to work decently to get to that highest echelon).
Now, during my university studies, I focused almost exclusively on writing professionally. I bled internships out of the wazoo, picked up freelance gigs that saw me writing from 6am to 9pm (with a bit of class and sleep thrown in), and put so much into my first comms role that I ended up crying in the toilets on several occasions. This is not a pretty story. It has a pretty ending - me being comfortable enough in a role far more senior than my age to
start my own English training business while writing a novel - but it is not a pretty story. I sacrificed friendships, relationships, all sorts of fun things to get to where I am.
Would I change any of that? Unlikely. But I have been on both sides of the equation - the flawless victory and the sacrifice play. You just have to keep asking yourself if it's worth it, and not be afraid to opt out before it's too late to.
In Year 12, many students turn 18. They start to mature as people. They learn about life, people, who they are and values they might hold for the rest of their lives. Aiming for 99.95 will restrict most of your learning to the textbook form.
Not necessarily, it won't. My 100.00 taught me that any system can be broken if you remember it's a system. It also taught me that hardest-working rarely, if ever, wins. It's not the goal that will restrict your learning - it's how you pursue that goal. You start to learn about life, people, self, and your values around the age of 18, but you will continue doing so for the rest of your life. And if you don't...well, I'm truly sorry.
Hope that helps the OP and others out there.