"Why this overwhelming urge to centralise things?"
Deduplication. Or, in government speak, "efficiency savings".
But what you describe isn't actaully decentralised, it's just lots of centres. And do you really want IDs and password for every government department? Contrast it with something like OpenID where a single ID is decentralised (lots of ID providers) and doesn't necessitate multiple signs on. Although, if the system was well designed and genuinely "user-focused", then it would allow us paranoid citizen-users to have a different ID for every department, if we wanted.