In general I think fears are overstated when compared to the usefulness for actually limiting the amount of bureaucracy. But i know that cultural acceptance of central governance is quite different in the US :).
What it doesn't do is secure identification, i think most people understand this, but it lessens administration and provides a huge boon to researchers in health and economics. We can get fairly accurate (factual) knowledge instead of speculation, and not doing a manual census across the country which much require quite a lot of money as well ;)
We used to have digital certificates (Xv509) for the last 3-5 years as an online identity/signature when doing anything related to tax, education etc. online. But it was deemed to hard to use, (browsers suck at implementing certificates, somebody fix this!). So we got a new system. Which i'm not entirely happy about.
The 'plot' consists of lobbying from banking industry, who really wanting to get into the business of being identity providers. So we got a new system which are used both for accessing your bank account and contact with government. However it does use two factor authentication (you get a a paper card with ~150 preprinted numbers), so it is more secure for all practical purposes (real users). But now it requires special software for signing mail. (And thus only thunderbird was supported... stupid).
Secondly the private key is then stored centrally, they claim all sorts of hardware crypto to secure access, but theoreticly it is a pretty bad architecture.
Also it sucks for signing data and email (ie, to your local county), since it currently requires special software support. Standard certificates doesn't, but it is just too hard to use :(. This is really bad. But i think it will be possible to generate a limited certificate and some later data, for specific uses like email signing. Further I would love if they didn't force you to use one identity provider, sadly they don't. I think that is the biggest mistake of the current policy.
But what does it solve? I can do everything online, securely and with a minimum of hassle (If it wasn't for the damn paper card. I know it's more safe but it is so cumbersome, even if it only takes about one minute more, and requires me move physically!! ;). But an online identity saves me time, saves time for the other part (government), and thus my puny amount of tax money is spend on other things than bureaucracy. Like hiring more comp.sci people to build such a system (yay!) ;)
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