Budget 2026: A Year in Which the Numbers Grew, but the Capabilities Shrank

Every year, when the draft budget is released, we instinctively look at the main figure — the one in the first line. It sets the tone of the discussion. In 2026, that figure is 4.8 trillion hryvnias. It looks impressive, even ambitious. But only until we ask a different question: “Is this a lot… relative to what?” If compared to the last pre-war year — 1.3 trillion — it appears that the country has expanded its financial capacity more than threefold. In reality, this is not growth but a forced expansion of the framework that contains very few real resources inside.

The numbers have increased, but the state has not. The issue with the 2026 budget is not that it is “bad.” The issue is that it shows Ukraine has entered a stage in which nominal figures no longer mean what they used to. The war has made one thing absolutely clear: the hryvnia as a budgetary unit and the hryvnia as a unit of real purchasing power are no longer the same. Inflation acts as a shadow “co-editor” of every financial document: it adjusts the figures without our consent.

If the 2026 budget is recalculated in the “honest” prices of 2021, the gap between what we appear to have and what we can actually afford becomes obvious. The state is not becoming wealthier — it is becoming more expensive.

Fifty-eight percent for defense is not an anomaly but the basic logic of survival. In previous years, we treated defense spending as something temporary and “exceptional.” Now it is no longer an exception — it is a structural reality that defines everything else. In 2025, the defense sector consumed 58% of expenditures. In 2026, this proportion is essentially repeated. This means that education, healthcare, culture, infrastructure, and social protection can no longer rely on real growth. These sectors operate in a mode of minimal maintenance rather than development.

A telling indicator is the share of social protection:

• 2022: 16% of the budget

• 2026: 10%

Six percentage points are not a statistical nuance but lost programs, underfunded hospitals, and reduced transfers. Pensions are indexed nominally but do not grow in real terms — inflation absorbs nearly the entire effect.

Over the past two years, Ukraine has covered roughly one-third of its budget through support from international partners. In 2025, up to $55 billion of external financing was expected. In 2026 — approximately $11 billion. The difference is fivefold. This is not simply a “shortfall.” The scale of the deficit is comparable to several months of funding the Armed Forces or several years of financing entire sectors such as higher education.

Against this backdrop, the government is choosing a different logic of action compared to previous crises. Earlier, the standard response was to raise taxes on the businesses already operating in the legal economy — the quickest and simplest method to obtain additional revenue. In 2026, however, the government is not betting on higher rates but on expanding the tax base through the legalization of shadow economic activity. The budget includes expectations of an additional 400–450 billion hryvnias generated by bringing a significant share of operations and income out of the shadow. Estimates of the shadow economy vary, but on average it amounts to around one trillion hryvnias in unpaid taxes annually, so even partial legalization could meaningfully affect the budget balance.

Unlike previous years, the focus on de-shadowing relies on broader implementation of technological tools. These include SAF-T automatic data exchange, electronic excise stamps, mandatory reporting by digital platforms on sellers’ income, and the gradual expansion of tax authorities’ access to banking information. This represents a shift not in the level but in the quality of control: the tax service becomes less dependent on what it is voluntarily shown and gains the ability to view real operations across a much wider scope. However, even with such instruments, no reform yields immediate results. Historical experience shows that de-shadowing plans typically achieve no more than 60–70% of targets. Thus, a realistic outcome may be 200–350 billion hryvnias, which does not guarantee full deficit coverage.

As additional revenue sources, the government is considering taxation of income on digital platforms, a tax on sugary drinks, and intensified collection of tax arrears. Altogether, these measures yield no more than 50 billion hryvnias — useful but insufficient to significantly influence the overall balance.

Raising tax rates is formally not part of the government’s plan but is viewed as a reserve instrument. In the memorandum with international partners, it is noted that an increase in the basic VAT rate is considered the most effective response to a major budgetary shock. One percentage point of VAT generates approximately 50 billion hryvnias in additional revenue; two points — around 100 billion. Such a step is possible if de-shadowing results fall significantly short or if international support is delayed.

The impact of these processes on businesses and citizens in 2026 will be driven not so much by the rates themselves as by strengthened tax administration. For businesses, the key changes will involve reduced opportunities for shadow operations and aggressive optimization due to expanded monitoring and access to data. Effective tax burdens may rise even if nominal rates do not change. For employees, the situation formally remains stable: personal income tax will remain at 18% and the military levy at 5%, although real purchasing power will continue to be eroded by inflation.

The year 2026 can be viewed as transitional. It will not bring major tax reforms, but it will become a year of preparing institutional changes and building the digital infrastructure for the subsequent transformation of the tax system.