The sanctity of the confessional allows for the open consultation of the priest to the person confessing. Without this, the sacrament of Reconciliation would be dissolved. The person confessing can tell the courts what they confessed, but if the priest was legally bound to tell what was confessed, nobody would tell their complete sins.
Yes, the sanctity of the confessional should mean that priests do not report sexual assault. The confessional is not effective if those entering it feel they are at risk of punishment from law enforcement. The point of the confessional is to have a safe place to confess. Hopefully, the priest's instructions will include to confess to law enforcement in make things right. The only exception to the confessional should be if there is eminent danger for someone. In that case, a priest should report the situation.
If people can not trusts priests when they are in the confessional than they would stop confessing to priests. This would make it very hard for them to do their job and would take away the far reaching benefits of the service. It is frustrating to know that someone may have commited horrible crimes that a priest knows about.
There is nothing more important than protecting our children. God will forgive a pedophile whether or not he receives punishment under the laws of men. It is too important to save and protect children to allow priests to hide behind the cloak. Priests don't exactly have a good record of not abusing children themselves, so they can't be trusted.