What about the likelihood of bitcoin replacing every currency in the world though? At that point, even allowances would be given in bitcoin.
But if everyone stopped using the fiat the government's own money would be useless, it wouldn't be accepted by others because nobody would be paid in it. What do governments use taxes for, police, war, firefighters, infrastructure etc.
So let's say all of these workers are only using bitcoin, well the government can't pay them because they won't take it, it's worthless. The government is already attempting to impose taxes upon BTC, why wouldn't you think they'll succeed? Once they do I am pretty sure they won't care what money we use - the problem is the banks themselves who have the control over our government at the moment.
I don't think it would be a demanding sort of situation where they say up front "PAY US IN BITCOIN." I think it would be much more gradual, something like this.
1. Slowly bitcoin becomes accepted everywhere, much like a credit card.
2. People start to realize bitcoin is easier and safer than credit cards (which at current it isn't easier, but by then it will be)
3. Some businesses start to offer bitcoin as an alternative method of payment (some already have started this)
4. All business offer bitcoin as an alternative choice
5. Slowly fiat as a source of pay is no longer an option at some businesses
6. Eventually once less than 10% of the population is taking their pay in fiat, BTC will become standard pay at all junctures
7. Governments will be paying out in bitcoin because they need to compete to keep a workforce employed.
This change would probably kick off once step 1 was complete, and a company springs up that offers to convert your paycheck to BTC instantly upon arrival but they'll take a cut as the service, this will cause employees to ask their place of business to do it directly since they don't want to pay a 1% fee on every paycheck just to have it in the common currency.
I'm not saying this is likely, but very possible.