The Ministry of Finance has no intention of raising taxes. How will the budget be balanced?
18 April 2025 14:16
The government has no plans to raise taxes. Minister of Finance of Ukraine Sergiy Marchenko said this during the government hour in the Verkhovna Rada, answering questions from MPs, reports
He emphasized that this year the government is responding to the risks that have already materialized and has a response to them.
“But we have no plans for fiscalization. Everything will be done under the conditions stipulated by the current legislation,” the Minister said.
In fact, the Minister of Finance repeated what he had said earlier.
For example, the official stated that there were no plans to raise taxes in early April during a telethon.
“We would prefer to avoid these steps in the short term, because we understand that it is quite painful for businesses and citizens who are trying to survive in difficult conditions,” the head of the Ministry of Finance said at the time.
As an alternative to additional funding for the army, the Ministry mentioned the possibility of using frozen Russian assets.
The government may also expect larger profit transfers from the National Bank, hope that foreign partners will finance part of defense procurement, and prepare to increase domestic borrowing through the issuance of government bonds.
Parliament is not inclined to raise taxes either
Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, suggests that the following unused budget reserves should be addressed first
– De-shadowing, which should raise at least $4 billion in addition to the budget plan this year, and even more next year
– cutting spending on inefficient budget programs such as cashback;
– and raising additional funds through government bonds at the expense of bank liquidity and local budgets.
According to Danylo Hetmantsev, the issue of raising taxes cannot be considered until the above resources are exhausted.
By the way, in March, the tax and customs authorities exceeded their targets, providing the state budget with over UAH 14 billion in additional revenues. At the same time, the State Tax Service fulfilled its monthly revenue plan by 109.6% (UAH 14.1 billion) and the State Customs Service by 100.5% (UAH 0.3 billion).
What are the immediate plans of the Ministry of Finance?
In his speech to the Parliament, Sergii Marchenko said that the immediate plan is to prepare the Budget Declaration for 2026, 2027 and 2028, which will include various scenarios and the government’s response to certain fiscal risks.
The Minister of Finance said that the government is now actively working to provide answers to any scenarios and is preparing relevant proposals.
Sergii Marchenko said that next week, Ukrainian officials will have active consultations with the finance ministers of partner countries, the International Monetary Fund and the World Bank, where they will outline risks, warnings and identify what needs additional support.
In fact, both the Ukrainian government and international partners recognize that the situation with financing in 2026 is extremely difficult, and therefore they are defining scenarios.
Ukraine has already agreed on responses to financial risks with the IMF
Ukraine will divide external financing from the G7 countries into three parts under the ERA mechanism and create a financial reserve of more than $10 billion in case of a negative scenario in which the war lasts until mid-2026. This option is provided for in the updated program of cooperation between Ukraine and the IMF under the Extended Fund Facility (EFF).
What are the options for allocating funds under the ERA program?
The baseline scenario assumes that $8.4 billion of the funds received this year will be considered as advance financing of the budget deficit of the following years: $8.1 billion will be used in 2026 and another $0.3 billion in the first quarter of 2027.
In the case of a negative scenario, $9.1 billion from this year’s ERA revenues and $1 billion from next year’s revenues will be used to form a financial buffer.
What financial scenarios are being considered
The updated program of cooperation with the IMF stipulates that under the baseline scenario, in which the war ends at the end of 2025, the amount of external financing to cover the deficit should be $39.8 billion this year, $20 billion next year, and $3.1 billion in the first quarter of 2027.
Under the negative scenario, in which the war will last until mid-2026, and shocks are expected in the second quarter of this year, the amount of external financing to cover the deficit will reach $48.8 billion this year, $21 billion next year, and $7.1 billion in the first quarter of 2027.
