Draft legislation paving the way for a national economy-wide digital identity scheme has been unveiled, with the federal government planning to introduce it to parliament by the end of the year.

The scheme was launched by the former Coalition government in 2014, with 10.5 million Australians now having some form of a digital identity.

The development has already cost more than $600 million, but currently the system is not based on any legislation and people can only use a government-built identity service to access Commonwealth services, with little private sector or state and territory government involvement.

The federal government has now unveiled how it plans to expand it to the states and private sector organisations, with Australians to eventually be able to voluntarily use a digital identity created with a private sector organisation to access government services.

A national Digital ID will provide Australians with a “simple, inclusive and convenient method for verifying their identity in online transactions with government and businesses, while protecting their privacy and the security of their personal information”, a government fact sheet said.

Finance minister Katy Gallagher discussed the plan at a speech to the Australian Information Industry Association on Tuesday, labelling it an “important economic, productivity and security reform”.

“People need to be able to prove who they are and verify their identity – sometimes at a moment’s notice – in an easy, safe, secure and voluntary way,” Gallagaher said.

The government will follow four principles in expanding the digital identity scheme: secure, convenient, voluntary, and inclusive.

The introduction of state and territory identification information and services and the private sector will happen across a phased process.

Responsibility for the digital identity project was moved from the Digital Transformation Agency (DTA) to the Department of Finance in July. The DTA had previously consulted on similar legislation in late 2020 but this was never introduced to Parliament by the former Coalition government.

A key function of the bill is to legislate the process of accrediting governments and companies looking to offer digital identity services in the scheme, which will replace the existing Trusted Digital Identity Framework.

The bill will introduce civil penalties for those operating in the scheme that are found to break the rules, which include prohibitions on the use of single identifiers, a prohibition on disclosing information for marketing, and restrictions on the collection, use and disclosure of biometrics and other personal data.

The Australian Competition and Consumer Commission will initially be tasked with regulating digital identity, with the Information Commissioner covering all privacy-related aspects.

It’s not a card

Early in her speech, Gallagher tried to address a concern that has surrounded the digital identity scheme since it was launched: that it will resemble the aborted Australia Card of the late 1980s.

“Digital ID is not a card,” she said.

“It’s not a unique number, nor a new form of ID. It’s just an easy way of verifying who you are online, against existing government-held identity documents without having to hand over any physical information.”

There have been growing calls for an economy-wide digital identity in the wake of a series of high-profile data breaches in the last year, including the Optus and Medibank hacks. Gallagher said such a technology will help to mitigate the risk of cyber attacks as businesses will eventually hold less user data.

“The impacts were felt deeply by customers, as businesses stored personal identity information needed to verify their customers,” Gallagher said.

“And whilst the government is responding in a number of ways…a secure and trustworthy digital ID system is one of them, with legislation that locks this system in place, and provides accountability, safeguards and oversight.”

The Labor government is now consulting on the draft legislation until 10 October, and is planning to introduce the final version to Parliament by the end of the year.