Well, this is the alternative to a census like the one we have in Canada or in the United States. You use administrative records. Several Scandinavian countries already do this, and this is something that the United Kingdom has indicated it wants to study for 2016.
You are absolutely right, they track it through a variety of administrative sources, and they track absolutely everything. You may not be aware directly, so it may not be as intrusive to your privacy, but somebody is literally following your every single move: if you move, if you change jobs, if your income status changes, if you buy a new car, and so on.
It's more expensive, we do know that, because the countries that implemented it had to increase their overall public expenditures. I think it's a debating point as to whether it's less intrusive. My own view is that their system is actually more intrusive than the type of system we have.