Economic incentives for circularity

Since not all EU Member States have introduced such economic incentives, an EU wide assessment of this indicator is not possible. However, the Swedish Tax Authorities collect data on the application of the repair tax-break and publish the amounts of deductions that have been made every year.

Sweden’s tax-break for repairs is composed of two types of deductions. One tax-deduction for domestic service work in repair, renovation and maintenance of houses (ROT-avdrag) and one tax-deduction for domestic service work (RUT-avdrag). Figure 1 presents the total amount deducted by ROT- and RUT-deductions between 2016 and 2020 in million SEK. There is a clear upward trend in the total deducted amount from EUR 1.2 billion in 2016 to EUR 1.6 billion in 2020, indicating that more repair activities were undertaken each year for this period.

The transition to a circular economy requires systemic changes, which can be encouraged  / enabled by policy measures that incentivise actors to align with circularity objectives. Economic incentives play a central role in reducing the barriers that arise from the current linear economic model. Such incentives can address market failures, by pricing negative externalities, steering the market towards more circular solutions, and influencing consumer behaviour to make more circular choices. Some countries have already adopted incentives of this nature. For example, Sweden and Austria have introduced tax-breaks for repairs that allow consumers to deduct tax on certain repair activities performed by contractors. Sweden offers tax-breaks for repairs of household appliances, building repairs, plumbing repairs, textile repairs. Data from the implementation of such incentives can be used as indicators to measure progress towards a circular economy. 

Monitoring the number of consumers who use this repair tax-break in Sweden could indicate changes in the uptake of repair in the country. An increase in the total amount spent on activities that are covered by the incentive could indicate that repair as a practice is growing among Swedish households. Since repairing existing goods rather than buying new ones is a key practice in a circular economy, changes in the uptake of repair by consumers can illustrate progress towards circularity.