Browser extensions needs to declare their permissions. With Manifest V3 we’re seeing even more need to declare permissions.
Any extension cannot do anything not explicitly granted to it by the user upon installation.
If I download $usefulWikipediaCompanionExtension whose functionality only depends on access to *.wikipedia.org but whose manifest demands permission on all sites, I'd like to be able to tell my browser "if I'm not really on Wikipedia, only show the extension a blank page."
I've lied about my birthday while signing up for websites before. I've also made ad-hoc email addresses with forwarding to conceal my main email address. I've given fictitious phone numbers and I've used the names of fictional characters. I do this because I benefit from the service but I don't trust the provider to use my information responsibly.
Not a logical leap to go from there to feeding fake data to extensions when they request data that the user deems unnecessary for their functionality.
I believe if you ask for very wide permissions, at least when publihsing a browser-extension in the Google Chrome-store, you will have to justify why those are needed (from a user-facing POV), and your extension will be subject for additional review.
The same also applies when creating other Google-related apps which uses APIs which Google deems sensitive or restricted: You will have to justify their usage and be prepared for a review.
It's not bullet-proof, but it's more than nothing.