New parents would be eligible for up to $12,000 in paid leave under a taxpayer-funded scheme proposed by the Productivity Commission.

Under the scheme, mothers would be able to take 18 weeks paid maternity leave and fathers two weeks, or vice-versa.

Both would be paid at the minimum wage rate of $544 a week, to a maximum per couple of $11,854 before tax, with their employer paying superannuation.

Businesses would have to fork out $75 million per year to pay the nine per cent superannuation to eligible parents.

The federal government would foot the majority of the bill at an additional cost of $450 million per year.

Maternity leave would be offered on top of any existing employer-funded scheme, and must be taken together within six months of the child's birth.

It is estimated around 140,000 mothers would meet the criteria each year.

Industrial Relations Minister Julia Gillard says it is no longer a question of whether Australia should have paid parental leave, but rather how to best provide such a scheme.

But Ms Gillard has refused to say if a parental leave scheme will be part of next year's budget.

She said the report was only a draft, but she agreed with Prime Minister Kevin Rudd it was time to "bite the bullet" after 12 years of neglect in this area.

"Today, we've received the draft report of the Productivity Commission," she told reporters.

"Now we've moved from the question of if we have paid parental leave to how to do paid parental leave."

New mums who are not in the workforce would receive a payment called the maternity allowance, worth - when combined with family tax benefits -

up to $6,800 pre-tax.

The allowance would replace the $5,000 non-taxed baby bonus payment.

The commission says the scheme is aimed at delivering better health outcomes, encouraging greater workforce participation and promoting better work-life balance.

Commissioner Angela McRae said the commission opted for 18 weeks to give parents the best chance of spending the first six months after giving birth at home.

"This is the most critical time for the nurturing of the newborn child," Ms McRae said.

"We think it's important, given the objectives,

to go for a longer period."

Commissioner Robert Fitzgerald said a non-government funded scheme would cost business an extra $1.2 billion per year.

"The consequences of that ... mean much greater active discrimination against the employment of women of child-bearing age," he said.

Mr Fitzgerald said he expected companies to

continue to provide maternity leave schemes in order to retain skilled women.

"The reason they have entered into voluntary schemes is to be employers of choice, they want to stand in the market place offering better terms

and conditions than their competitors."

Prime Minister Kevin Rudd said the federal government was an advocate for paid maternity leave.

"This Australian government believes the time has come to bite the bullet on this and we intend to do so," Mr Rudd told reporters in Newcastle, in the NSW Hunter Valley.

"The future economy has to provide this level of choice for stay-at-home mums, to be supported with the baby bonus, but also for women in the paid workforce to be supported with paid maternity leave."

ACTU president Sharan Burrow said employers should be required to "top up" the government payment so women on higher wages have their income fully replaced while on leave.

"An employer top-up would be an investment in the wellbeing of employees, with women more likely to return to work in good mental and physical health," Ms Burrow said in a statement.

She said 18 weeks was a "good start to help women recover from childbirth, bond with their baby and establish feeding".

But the ACTU says stay-at-home mothers should also receive an equivalent 18-week payment and women should be able to access some of the funds before the birth of their child.

The commission will seek national consultation on its proposed model over the next few months before it hands down a final report to government next February.