Figures provided by Dunedin South MP Clare Curran, from Inland Revenue Department, revealed 3721 Dunedin parents owe about $39 million in child support, $24.9 million of which was penalties, as of June 2009.
She was calling for a "complete review" of the child-support system because harsh penalties were "negating the purpose" of it.
"There is no doubt we need to ensure that non-custodial parents take responsibility for their children by paying an appropriate amount needed to ensure their children do not miss out.
"We can't, however, make the system so difficult that people simply choose to opt out, due to the mounting level of debt accrued through penalties and interest."
An Inland Revenue spokesman said, as of March this year, 176,500 people were liable for child support, 121,500 of whom had outstanding debt.
This group owed more than $1.8 billion, more than $1.2 billion of which was penalties.
Ms Curran said it was estimated child-support debt would reach $7 billion by 2018 and 96% of parents liable for payments had incurred a penalty at some point.
If incentives were put in place for paying pay child support, and it was not so punitive, she believed more parents would pay it.
Her "frustrations and concerns" with the current system were reflected in a recent report by Controller and Auditor-general Lyn Provost, she said.
"The report suggested that the penalty regime is too onerous and may actually act as a disincentive for people to meet their responsibilities.
"Another area of concern highlighted in the report was the lack of contact on behalf of the IRD to those who are new to the scheme."
Inland Revenue used "a range" of approaches to collect child-support debt, the spokesman said.
Its aim was to collect arrears over the shortest time possible and consider the financial position of the debtor.
"Most people recognise the importance of supporting their children financially, even if they are not living with them and do meet their obligations of their own accord."
Revenue Minister Peter Dunne could not be reached for comment.
