Because the alternative is that we provide our passport to every online service that 'needs' to verify our identity. Then – lo, would you believe it! – they get hacked, and now all of our data is in the wild again.
I'd much rather the government, who already know everything about me because may I remind you they issued the documents, had some way of that company querying my 'verified identity'. They might do it by me providing, say, an ID number string which is looked up. That's all they get: my ID number. In return, they get confirmation that I am who I say I am.
Oh by the way I already have at least 2 of these ID numbers as an Australian citizen. My aforementioned passport, and my driver licence. Both of which I know I should keep 'private', lol, but if I want to interact with the world in any meaningful way the reality is that I spray these digits – along with my date of birth and address and whatever else they ask for – all over the goddamned place.
But sure, centralised identity is bad.
The question isn’t whether the government can/will identify and track you. They do, in good faith or bad. This is unfortunate and attempts to allow them to decrypt or acquire additional data about citizens’ activities (like chat control) should be opposed, but identity/activity tracking is omnipresent and irreversible.
The question is whether identity credentials should be available which reduce the risk of additonal credential theft or bad-faith action (e.g. by other entities stealing non-secure-for-digital-use credentials like passports).