I don't actually have a problem with that as a solution to using a stronger ID. I still think it would need to be coupled with an additional security token or key on the passport side to complete the security, but that's a relatively simple change versus implementing a new ID system from scratch.

Although I don't think they're trying to pass the cost to the government. By calling it "identity theft" instead of what it is, fraud, they're trying to pass the cost of fraud to the consumer.