The "swamp" costs $8 billion a year, the conservative think-tank says, calculating the figure from higher public service wages, public broadcasting, payments to international organisations, the money that political parties award themselves, and grants to "organisations that exist to lobby government for more money".

The spending distorts the economy and distorts politics, going to groups pushing partisan views, such as the Human Rights Commission.

The institute's comments come in a submission to a parliamentary inquiry into "nationhood", which is looking at the breakdown in trust in democracy. It has heard from wildly disparate groups with equally disparate solutions.

For the Institute of Public Affairs, the solution is reducing the reach of the federal government and putting power back into the hands of local councils and state governments.

Its submission, written by director of research Daniel Wild, along with Andrew Bushnell and Zachary Gorman, says more home ownership would return a sense of stability and community.

People who owned a home would prefer stability, look after their local area, oppose radical change that would damage the value of their home, and become more attentive to the local politics.

It describes home ownership as "an existential issue to the future of our nation", and warned that as more people are forced to rent, the government will face demands to for laws to protect renters. Calls for rent control and longer leases would grow louder, and as the number of renters grew, those calls would be answered, "probably by the left".

It called for limits on mass migration into the major cities, more land release, more relaxed building and zoning laws.

It also pointed to the falling number of small businesses - and called on new policies to restore the role of small business, including reducing the powers of unions, limiting unfair dismissal laws, cutting red tape and reducing business tax.

The group said through "bizarre" identity politics and interfering with religious and other organisations, as well as through making it harder to get a job, buy a house and start a family, the government had encouraged "a flattening, and deadening, standardisation of relationships".

"It is almost as though governments around the world have become actively opposed to the formation of meaningful lives," it said.

It complains about the amount of money that goes into the non-profit sector, used to campaign for self-serving policy. It pointed to 42 submissions to a parliamentary inquiry on the Racial Discrimination Act from publicly funded groups.

"The Canberra swamp is a system for subsidising marginal viewpoints that provide an excuse for centralisation and bureaucratisation. It is no wonder then that people increasingly see the state as hostile to their interests."

The institute called for more MPs, which would allow them to represent smaller communities - and it said the major political parties should stop fearing the bigger Senate with more minors and independents that would result.

And it said states and councils should be given more control over schools, hospitals and other services - which would mean better decision making and more interest from communities in local government. The institute pointed to the impact the Murray Darling plan had had on farmers, and the restrictive land-clearing laws which it said had accelerated bushfires and risked lives.