The Privacy Commissioner has been consulted on the possibility of using identification numbers attached to preschoolers as a way to track and punish parents.
About 190,000 children in early childhood education will be assigned a national student number from next year.
Documents obtained by the Herald show the Government has discussed using children's information to target particular parents.
New obligations require beneficiaries to take reasonable steps for their children to attend early childhood education from the age of 3, or have their benefits cut.
The prospect of attendance information being passed on worries early childhood providers, who have previously been assured that information would not "dob in" parents.
"If that is an intention, then the conversation needs to be had sooner rather than later, so that people are really clear about the potential of this new system," said Clare Wells, chief executive of NZ Kindergartens.
When the Herald first reported on concerns about how the student numbers might be used in July, the Government downplayed fears and said there were no plans to pass on information.
That assurance has been reiterated. However, documents released under the Official Information Act show the Office of the Privacy Commissioner has been consulted on such an arrangement.
The office has been given a watchdog role over information sharing agreements between government organisations, and must be consulted when they are being discussed.
In July it received a document from the Ministry of Education which listed, as a possible future proposal, information sharing with the Ministry of Social Development to ensure beneficiaries' social obligations.
"This policy, and the information involved, will be subject to a formal information-sharing agreement between the Ministry of Social Development and the Ministry of Education," the document read. "Work on this policy is still under way."
In a note accompanying the information release, the Ministry of Education said it had raised the issue because it had considered a wide range of potential uses of the student numbering system.
"No work is under way on information-sharing agreements, and no information sharing with the Ministry of Social Development has been carried out for ELI [Early Learning Information System]."
The Ministry of Social Development said the ability to determine the participation of beneficiary children in early childhood education was currently limited.
However, "over time, the potential to share information with [Ministry of Education] to support the ECE and school attendance obligations may be considered further".
Minister for Social Development Paula Bennett said there was currently no agreement to share information about attendance.
"So far I'm not aware of any significant issues with parents meeting their obligations and I think the vast majority of parents really value early childhood education."
Teachers could boycott scheme
Early childhood providers are strongly opposed to information they collect being used to police beneficiaries.
Peter Reynolds, chief executive of the Early Childhood Council, says centres and teachers would boycott collecting information if such a programme was brought in. In a letter to Privacy Commissioner Marie Shroff, released under the Official Information Act, Mr Reynolds outlined his concern.
"If early childhood centres are made complicit in such breaches of customer/client confidentiality, there will be negative unintended consequences for the relationship of trust between teachers and parents. We are especially concerned regarding the potential impact on trust between centres and the caregivers of our most at-risk of children - many of whom are disinclined to trust institutions of any kind."