The Victorian government has started cracking down on identity theft by introducing new offences and increasing penalties.

Acting Premier Rob Hulls said new legislation would beef up protection against identity theft and help in the prosecution of identity crime.

More than half a million Australians were last year victims of identity fraud, and it cost big business more than $1.1 billion in 2001/02. "Identity fraud strikes at the heart of the way we operate in a contemporary Western society," Hulls told reporters today.

"The expansion of global internet use and its attendant trade in personal information has really multiplied the risk of this information being used in identity fraud."

New offences will be created that make it illegal to steal identities with the intent to commit fraud. Currently criminals can only be charged once they actually commit a crime. It will also be illegal to possess equipment for making identity documents and to deal in identity information. Maximum jail terms will range from three to five years.

Detective Inspector John Potter from the Victoria Police fraud squad welcomed the plans. He said fraud accounted for 31 per cent of total crime in Victoria.

Organised crime syndicates were largely involved in identity theft, and often established venues purely to manufacture new identification documents. The new laws will help police be proactive in stamping out those intent on stealing identities, Potter said.

"This will allow us to go on the offensive and allow us to target those groups that possess inappropriately both documents but also equipment ... our ability is substantially enhanced with regard to targeting criminal groups and their tools of trade," he said.

Simple actions, such as shredding any documents like electricity or gas bills, could help people stop identity theft, he said.

Hulls described identity theft as an "insidious" crime. He said while it was "virtually impossible to wipe out crimes of this nature", the government and police were doing their best to stay ahead of technological developments.

The new offences under the Crimes Amendment (Identity Crime) Bill will close legislative gaps identified by a report to the Standing Committee of Attorneys-General and will be introduced to parliament before the end of the year.