The Productivity Commission recommended a taxpayer-funded scheme under which the primary carer of a child would receive 18 weeks' paid maternity leave at the minimum wage rate, now 544 dollars (449 US) a week.
Employers currently only have to give women 12 months of unpaid leave when they have a baby.
"We are still some ways off resolving the final policy detail but what I am saying to you loud and clear today is that this Australian government believes the time has come to bite the bullet on this and we intend to do so," he said.
The commission proposal, estimated to cost about 1.3 billion dollars a year, would see working mothers paid more than their stay-at-home counterparts. It would also allow partners to receive up to an extra two weeks' paid leave.
Rudd declined to say whether his administration would support the commission plan for new mothers to receive 18 weeks of paid leave.
The proposal also calls for the 'baby bonus,' a one-off 5,000 dollar payment all mothers are eligible for depending on income, to be scrapped for all but stay-at-home mums.
"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 work force to be supported with paid maternity leave," Rudd told reporters in Newcastle, north of Sydney.
Productivity commissioner Robert Fitzgerald said the move was "a workplace entitlement" and "not a welfare measure."