According to these sources, the decision was taken recently in the wake of the bid to introduce a blacklist in a supposed attempt to block undesirable sites.
People in high places apparently realised that it was much better to have the public sign up for licences, the terms of which would ensure that they kept away from sites which the government deemed unsuitable for them to visit.
"No more mucking around with blacklists and public debates which make a fool out of us," one source said. "We don't know zilch on the technical front, so licensing is the way to go. It will make money for the government and we can block what we want."
Internet service providers have been informed of the plans and most have fallen in line. Some are holding out, reportedly because of "archaic" concerns of freedom of speech, but the sources indicated that these ISPs would have no option but to join the rest.
"Else they'd have to start selling potatoes," one senior official said.
The licensing scheme will be similar to that used for driving licences in the state of Victoria; a first-time applicant (who would have to be 16 or over and an Australian citizen) would be given a "red" licence.
This would be upgraded to a "green" licence for the next three years provided there were no infringements - accessing of forbidden sites - in the first year. After the three-year period, a permanent licence would be granted but it would have to be renewed every five years.
Red licences would cost $A75, green licences $A100 and permanent licences $A125 apiece. One licence would enable four occupants at a given address, all above the age of 16, to use the internet.
Minors would be able to use the net only if one parent had a permanent licence. New migrants would be able to use the internet only at public locations.