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Surely this is not possible (assuming the recently deleted folder is cleared)? I know it could be done with insecurely erased hard drives but I dont think any phones are using those?

It is indeed possible, recovering a fully deleted file or even chats logs is the easiest part, given it’s unlocked. I don’t know about Australia, but plenty of law enforcements use cellebrite (1), and there are other tools too that provide such forensic analysis.

(1) https://cellebrite.com/en/home/

If you wipe the phone completely and re-image it, they can't recover a thing.

Hypothetical 2: leave your cell at home and just carry your sim card. After leaving airport, purchase a usable phone and insert sim card. Remove card and ditch phone when leaving country. Would they detain and harass this person?