This headline is actually pretty misleading. From what I've seen of the project, it is not about the government issuing online identities. Rather they've realized that people already have identities from services like Facebook and Google as well as banks.

This project is aimed at making it possible for people to interact with government agencies using identities they already have. Some interactions require very little security and knowledge of who a person is (leaving a comment here for example) while others (paying your taxes) require quite a bit.