Federal Cabinet has approved the introduction of an Australian identity card amid claims it could be a $5 billion noose for the government.

Costings for the project vary wildly from $1 billion to $5 billion, but the federal government is pushing ahead regardless with plans to issue more than 11 million welfare smartcards - with photo ID - to recipients currently using a variety of up to 17 other cards to access government payments and services.

The Department of Human Services - which includes Centrelink and Medicare - is investigating a smartcard solution as an improvement to existing Medicare cards which do not have photos.

Dubbed an access card by the department, it will be phased in over a two-year registration period beginning 2008. From early 2010, users will only be able to obtain government health and social services benefits if they have the card.

Human Services Minister Joe Hockey said a photo ID is required to rent a car or hire a video.

"But you can get a $12,000 a year pension for life and not have to present robust identification; if you're claiming taxpayers' money you have to prove who you are," he said.

Hockey referred to a feasibility study conducted by KPMG which found it would cost up to $2.3 billion to implement such a scheme.

While costings are yet to be finalized, the department estimates it will be around $1 billion over four years with savings of $3 billion over 10 years.

But David Vaile, the executive director of the NSW's Cyberspace Law and Policy Centre, isn't so optimistic.

Vaile said it could cost $5 billion and take up to five years to implement, and added that the $1 billion and 18-month timeline being touted by members of the government is unrealistic.

IT projects tend to be "grossly underestimated" in terms of cost and timing and retain poor control of function and scope creep, Vaile said.

"How long did the Customs [cargo management] project take? This is an order of magnitude greater and we don't know the full scope. I haven't seen a feasibility report," he said.

Vaile described as an "exaggeration" the proposed $3 billion savings a smartcard would deliver through a reduction in fraud, because of the "vague" benefits which don't account for extra risk introduced by a "central place to target".

Vaile likened the amount of software development required for the smartcard to a "train wreck".

"It's huge, involves disparate systems, and more likely to fail," he said.

The challenge a government services smartcard faces is to gain access to multiple systems while maintaining an appropriate privacy and security framework to ensure a person's information is not compromised or accessed out of context by an agency.

A person may not want a Centrelink officer to know their medical history, he said.

"It sounds like a software sales pitch rather than an IT project," he said. "They provided a vague policy announcement that raises all these privacy, security and software development issues.

"If you were looking at this as a software developer, you'd have to say there's uncertainty, lack of knowledge and, at the moment, it would have to be at the top end of the risk scale."

Vaile believes what is eventually developed will be policy driven. Security may be diluted in order to arrive at a working system, he said.

A spokesperson for the Human Services Department said that, while the smartcard implementation would be "quite costly", it has the potential to deliver "significant" savings and ensure the $92 billion in services its users will access will be more equitable because of reduced fraud.

"It's about making the system a lot better [because] the current system is not that secure, so we're upping the scale more," the spokesperson said. "A photo is needed on everything these days."

However, even if the Human Services' smartcard costs more than a billion dollars, the spokesperson said such an expense can be justified because of the high volume of monetary transactions it processes every year.

Keycorp's smartcard business development manager Ben Shephard said Hong Kong's national identity card was rolled out for between seven and eight million people for less than $US500 million.

Shephard said that amount included a sophisticated enrollment process to ensure cards are issued legitimately. The related infrastructure is in place.

Terry Hartmann, Unisys Australia's director of secure identification and biometrics, who was involved in the MyKad Malaysian smartcard implementation, said measuring the scope of both card unit and implementation costs is the critical question.

Hartmann said if you run a smartcard like a multipurpose card with a basic 64K chip it becomes cost effective, because most electronic passports are based on those chips and there are already economies of scale.