Tax hikes and spending cuts – Ukraine is trying to fill the gap in funding from the US

Months of political deadlock in the US Congress over a $60 billion aid package to Ukraine have forced Ukrainian authorities to seek alternative donors to finance their military efforts against Russia and to prevent sharp cuts in public spending, writes The Financial Times.

Ukraine has allocated nearly half of its budget ($87 billion) this year to defense-related spending, but its domestic revenues are only $46 billion, meaning it must cover the shortfall with the help of international partners and through cuts non-military expenses. The deficit will increase even more due to the expected draft wave of up to 500,000 recruits, whose salaries, training and equipment will require billions of dollars more.

"We have almost exhausted our capabilities – all internal resources are used to finance the army. The government is negotiating additional budget support with other G7 countries, especially Japan and Canada. We are also considering the possibility of a significant reduction in non-military spending," the head of the budget committee of the Verkhovna Rada, Roksolana Pidlas, said in a comment and did not rule out tax increases, FT notes.

According to Pidlasoi, Ukraine's initial "plan A" was that new aid from the US and the EU would start arriving in January. Hungary has delayed a four-year, €50 billion EU non-military aid package that was eventually agreed in February. Now Kyiv began to consider "plan B" and "plan B".

Since the beginning of the war, Ukraine has spent almost all of its income on training, equipping soldiers and paying them salaries. For everything else, the state relies on a complex mix of increasingly unpredictable Western aid. Budgetary support from the US, IMF, EU and World Bank can only be used for non-military expenses, such as pensions and salaries.

Spending cuts, privatisation, higher taxes and – as a last resort – printing more money are also being considered as options, Pidlasa told the FT, adding that "most of these administrative methods will be unpleasant".

Ukraine's leaders reject suggestions that their country should be a mirror image of Russia's war economy, arguing that more than half of its economic output is generated in the services sector and much of its industrial base was dismantled after the collapse of the Soviet Union and continues to crumble since the war. notes the FT.

"If we call everyone to work for military production, who will pay for ordering shells and equipment? Someone has to pay taxes," Pidlasa said.

According to the head of the tax committee of the Verkhovna Rada, Danylo Hetmantsev, over the past 12 months, tax revenues have increased by 12.4%.

"Taxes are a weapon. Before the war, half of the economy was in the shadows," Hetmantsev said.

We will remind you that the Cabinet of Ministers of Ukraine is preparing a new draft law, which should provide for additional revenues to the state budget (44 billion UAH), in particular due to the introduction of a military levy for FOPs.

Earlier, the deputy head of the tax committee of the Verkhovna Rada, Olha Vasylevska-Smaglyuk, stated that Ukraine is not considering raising taxes to compensate for the lack of aid from the US, but does not rule out that they may revise excise duties and subsoil fees.

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