More than a third of people are unwilling to provide personal information to the government because they don't trust it to keep data secure and almost half are uncomfortable about their personal data being used to inform policy and research, posing a major challenge for the Commonwealth's drive to deliver more services online.
A study of public attitudes to government collection and use of data found that although most people prefer to access government services online, many are wary about sharing their personal information, with more than half concerned about hacking and unauthorised use.
The results comes as the federal government intensifies its drive to use data and communications technology to deliver more of its services.
In announcing his reform agenda for the Australian Public Service late last year, Prime Minister Scott Morrison said the government was "not just guaranteeing but transforming the services Australians rely on - using digital technologies and data so Australians can access simple and reliable services, designed around their needs".
But the Boston Consulting Group-Salesforce study, based on a survey of 1600 people in Australia and New Zealand, shows that while there has been a surge in the number of people accessing government services online (up 56 per cent in the two years to 2018), satisfaction with the standard of these services is falling and undermining trust.
Boston Consulting Group managing director Miguel Carrasco said people had high expectations for government online services - 50 per cent thought they should be as good as the best private organisations like banks and airlines.
But when online transactions fall short of expectations confidence and trust in the government takes a hit, creating a deficit that Mr Carrasco warned would continue to widen.
According to the survey, 85 per cent of people said the quality of their experience with online services directly influenced their trust and confidence in the government.
The biggest hits to trust came from the perceived difficulty of online transactions and inadequate information about how data would be used.
The reluctance of people to share data was particularly significant because it could lead to "significant losses in social and economic benefits from data collection and use", the report said.
"To reverse this situation, governments need to tackle the skills gap in the public sector, partner more effectively with industry, modernise outdated ways of working and reform the rigid traditional digital service funding and governance models that restrain innovation," Mr Carrasco said.
The office said that, as a result of consultations, "we have learned that transparency and accountability underpin earning peoples' trust. People have more confidence when they can see how data is being used".
It said the legislation would have strong transparency and accountability requirements and would allow "controlled" government access to data for service delivery, policy and program planning, and academic research and development.
The Australian Competition and Consumer Commission is also looking into digital platform services such as Facebook and Amazon, including practices "which may result in consumer harm".
But episodes such as the trouble-plagued robodebt scheme, in which the government matched data from the Australian Taxation Office with income reported to Centrelink by welfare recipients to automatically identify and initiate debt recovery processes, have hardly inspired confidence in how the government handles and shares data.
It was only after months of steadily mounting complaints that the system was incorrectly targeting people that Government Services Minister Stuart Robert admitted there was a problem and announced the government would no longer use average income data from the tax office as the only basis to raise a debt against a welfare recipient. All such debts will be reviewed.
Recent data breaches such as the massive hack of an Australian National University database holding 19 years of personal information have also stoked worries about data security.
But Salesforce APAC public sector strategy director Gisele Kapterian said that providing assurance on data security went beyond "the infrastructure of keeping people in and out".
Ms Kapterian said people wanted quick, efficient and seamless online services, but large-scale government projects were being challenged by data usage and transparency concerns.
While people appreciated the benefits of services being online, the government had to better explain why it was collecting data and how it would be used.
"Service innovation, whether in the public or private sector, is powered by data," Ms Kapterian said.
"It's never been more important to engage the community with transparency and clarity on how governments protect customer data and use it to the public's benefit."