A third whole-of-governnment IT function
It is very unusual for a whole of government administrative policy function to be located outside of Finance. In fact there are already two of IT-related whole of government functions in finance -- AGIMO and AGICT.
You could argue that the DTO is the direct result of the failure of AGIMO to deliver a government-wide usable, robust and secure authentication service.
The most worrying part of the DTO is the focus on changing service delivery. Government runs large service delivery organisations which have considerable downside risk upon failure (ie, people starve until the issue is sorted). That makes government service delivery necessarily conservative; and rather at odds with the notion of the proposed startup culture, where failure is common and only involves money.
The previous government had a poor experience allowing policy departments to become enmeshed with service delivery -- a senior officer at Centrelink or ATO could have run the home insulation scheme without half the errors which occurred running it from Environment (they certainly would have anticipated the level of "get rich quick" operators who appear when government money is on offer, and put in more rigorous rules to ensure the government got better value for money than putting alfoil in people's roofs). Let's hope that lesson has been learned when DTO recruits staff. The zero budget is a poor beginning here, as it signals that Communications may try to fill the senior roles in this office from its current staff.
There's also the interesting question of what a government department does when it knows it is right and DTO disagrees, or vice versa. This is the detail which will determine how much power DTO actually has.