Tony Abbott has recommended boosting pay and conditions for teachers in remote areas, including waiving university debts, to improve the quality of indigenous education.
The former prime minister also suggests deducting fines imposed on parents for breaking truancy rules from other government payments, rather than using the "often ineffective" threat of jail time for refusing to pay.
Mr Abbott encouraged schools to engage more closely with housing authorities and police.
The proposals are contained in his first report as the government's special envoy on indigenous affairs, which he presented to federal parliament on Thursday.
Mr Abbott said amidst the "generally depressing" indicators on indigenous Australia, one factor stood out.
"Indigenous people who finish school and who do complete a degree have much the same employment outcomes and life expectancies as other comparable Australians," he told parliament.
"It stands to reason that to have a decent life you've got to have a job, and to have a job you've got to have a reasonable education."
Mr Abbott has recommended the federal government work with the states and territories, who are responsible for paying teachers, to substantially increase the salaries and bonuses paid to those in very remote areas.
He wants the government to waive the HECS debts of teachers who, after two years experience at other schools, move to extremely remote schools and stay there for four years.
It is compulsory for school-aged children to be enrolled and not to miss classes without a good excuse, but truancy laws are difficult to police and the parents of persistent delinquents are rarely punished.
"There should be direct consequences for bad behaviour, not just the long term cost to society of people who can't readily prosper in our modern world," Mr Abbott said.
"Fines are often ineffective when jail is the only mechanism for making people pay."
However, Labor MP and the first indigenous woman in the lower house Linda Burney says a pecuniary approach isn't the way forward.
The cycle of poverty gripping many indigenous communities needs to be addressed, as access to healthcare plays a role in having a good education, she said.
"I don't doubt (Mr Abbott's) passion and commitment for one second ... but on this issue and other issues we do not see eye to eye," Ms Burney told the chamber.
"This government's rejection of the Uluru 'Statement from the Heart' and the proposal for a voice and constitutional reform looms large in the debate."
Labor's deputy leader Tanya Plibersek said Mr Abbott as prime minister had presided over "chaotic" service delivery in remote Aboriginal communities and the coalition had cut spending on indigenous early education programs.