Budget-2025 under the guise of war: how they want to redistribute state funds under the slogan of defense

On June 30, the Cabinet of Ministers registered in the Verkhovna Rada a draft law on amendments to the 2025 state budget. Publicly, this step is justified simply: the war continues, the Armed Forces need more than expected, and therefore it is necessary to revise the budget architecture. But behind the facade of the obvious wording, a more complex construction is revealed. The draft law does provide for a significant increase in military spending, but it is not limited to them. Along with the financial strengthening of the defense sector, the government document provides for additional budget resources for those who are not directly related to the defense of the state. We are talking about institutions, departments and areas that are in the shadow of public attention, but certainly not in the shadow of financial flows. Against the background of the war, the budget once again becomes a tool not only for the survival of the country, but also for a delicate political game of priorities.

What are the changes to the State Budget-2025

On June 30, the Cabinet of Ministers registered in the Verkhovna Rada draft law No. 13439 on amendments to the Law of Ukraine “On the State Budget of Ukraine for 2025” regarding the financial support of the security and defense sector and the resolution of priority issues. The press service of the Ministry of Finance noted that a full-scale war requires the government to adapt to the realities of war and be ready to make decisions that will contribute to increasing the country’s defense capabilities. The main declared goal of the document is the need to increase military spending in the face of an ongoing full-scale war. At the same time, the proposed adjustment covers not only the needs of the army: additional funds are provided for those sectors that are not directly involved in the defense of the state.

It should be noted that this is the fifth time since the beginning of the full-scale invasion that the government has initiated a review of the expenditure part of the state budget in the middle of the budget year. In 2023, the government closed the hole of 500 billion hryvnias by increasing the tax burden on the population and business. Despite the fact that these increases are maintained in 2025, the receipts again turned out to be insufficient. The main reason for this is a significant reduction in the volume of international military aid. Under such conditions, the government is forced to independently finance the purchase of weapons, spending the annual budget allocations in a short period of time and actually “approaching” the funding provided for the whole year. For the period January–May 2025, expenditures of the general fund of the state budget on security and defense have already reached 984.1 billion hryvnias, which is 64% of all expenditures. For comparison, for the same period in 2024, these expenses amounted to UAH 732.8 billion, or 58.3% of all expenses of the general fund of the budget.

Prime Minister Denys Shmyhal confirmed that the costs for the purchase of weapons and ammunition for the Armed Forces already exceeded the set amounts at the beginning of the year, which is due to a decrease in the amount of foreign aid. According to him, additional resources may be needed in the second half of the year. In addition, Shmyhal noted that in the first five months of 2025, the government has already allocated about UAH 1 trillion to the security and defense sector, which is two-thirds of all expenditures. Compared to the same period of the previous year, this amount increased by 34%.

In the explanatory note to the draft law, the government defines the key provisions: it is proposed to adjust the expenditure part of the state budget by 397.5 billion hryvnias. In order to cover these costs and balance the budget, it is planned to increase revenues by 147.5 billion UAH (137.5 billion — general fund, 10 billion — special fund) and carry out debt borrowing of 250 billion hryvnias. At the same time, the limit of the budget deficit should increase by 3%, and the limit of the state debt should increase by 184.9 billion hryvnias.

The draft law also provides for the possibility of exceeding the limit of the national debt by the amount of credits and loans raised in accordance with international agreements, in particular with the EU, foreign states, financial institutions and international organizations. It was determined that the return of these funds will not be made at the expense of the state budget, but from other sources, including potential revenues from frozen Russian assets in accordance with Regulation (EU) 2024/2773 of October 24, 2024. The head of the government emphasized that every hryvnia of taxpayers from the state budget is directed primarily to the needs of the Armed Forces.

In the project of changes to the state budget, the government proposes to increase the financing of the security and defense sector by another UAH 412.4 billion. Of these, the largest amount — UAH 310.8 billion — is earmarked for the Ministry of Defense. Other departments should also receive additional funds:

In addition, almost UAH 19 million is additionally provided for the Reserve Fund of the Cabinet of Ministers. We will remind that UAH 29.6 billion was allocated for this fund in the current budget, a large part of which has already been spent by the summer, in particular on the “Winter Support” and “National Cashback” programs initiated by President Volodymyr Zelenskyi.

Separately, the project of amendments to the budget raised the topic of restructuring the loan of the State Food and Grain Corporation, taken in 2012 from the Export-Import Bank of China under a state guarantee. The government is asking for the Council’s permission to temporarily suspend payments on this loan until negotiations on new repayment terms are completed, since the final repayment of the debt is in 2030.

Another proposal concerns changes in the distribution of personal income tax paid by military personnel, police officers, and senior officials. According to the decision of the Council from November 2023, this so-called military personal income tax was withdrawn from local budgets and redistributed as follows: 45% to the State Special Communications Administration for the purchase of drones, 45% to the Ministry of Strategy and Industry for the production of weapons, and 10% to military units. Now the government proposes to keep the proportion, but to change the recipient of 45% to drones — instead of the State Special Communications, these funds should be received by the Ministry of Defense, which makes purchases through the Defense Procurement Agency.

As you can see, the draft law contains expenditures not directly related to defense and adaptability to the realities of war, as its initiators emphasize.

Sources of coverage: at the expense of which the government plans to ensure additional expenditures of the State Budget-2025

The draft law on amendments to the State Budget of Ukraine for 2025 is formally designed to redistribute available resources in accordance with new economic realities. However, its construction, justification and established mechanisms bring the budget process to a new level of centralization, where under the slogan of military necessity, the Cabinet of Ministers receives unprecedented levers of managing state finances, including the right to transfer funds, change articles, create new programs manually and exceed the state debt limit without returning it from the budget.

Financing of these changes is expected to be carried out at the expense of four main sources: exceeding the revenue plan, savings on other expenses, reduction of debt service costs and additional domestic borrowing. The explanatory note states that it is proposed to increase the revenue part of the budget by UAH 147.5 billion. Of these, UAH 137.5 billion is allocated to the general fund, and another UAH 10 billion to the special fund. According to the project, additional revenues will provide:

– personal income tax and levy (PIT) – UAH 56 billion, of which UAH 10 billion will go to the special fund. This overperformance is explained by the growth of the average salary and expenses for the financial support of the military;

– corporate income tax – UAH 23.8 billion. The calculation is based on the data of the declaration of earnings for the IV quarter of 2024, the year as a whole and the I quarter of 2025;

– funds transferred by the National Bank of Ukraine – UAH 20.3 billion. This is bringing the plan into compliance with the already approved and transferred profit amounts;

– part of the net profit and dividends of state-owned enterprises – UAH 15 billion, calculated on the basis of the financial results of 2024;

– excise tax on imported tobacco products – UAH 8.8 billion, due to the increase in the volume of cigarette imports;

– funds transferred by the Individual Deposit Guarantee Fund – UAH 7.9 billion, in particular as surplus capital and claims against insolvent banks;

– collection for mandatory pension insurance from individual operations – UAH 4.1 billion;

– administrative fines in the field of traffic safety – UAH 2.7 billion;

– other revenues – UAH 8.9 billion.

In a separate block in the explanatory note, the increase in other revenues in the amount of UAH 23.6 billion is allocated. This is an increase in administrative fines and sanctions (3.8 billion), the aforementioned pension levy (4.1 billion), other sources (15.6 billion), including the aforementioned funds of the Deposit Guarantee Fund.

The second major source is cost savings in the amount of UAH 51.3 billion. Among other things, these are funds under the budget programs “Service of the public debt” (46.7 billion UAH) and “Execution of guarantee obligations by the state for borrowers” (3 billion UAH), as well as reduction of expenditures under the programs of the main administrators.

The third source is a decrease in expenses for repayment of the domestic debt by UAH 65.1 billion. At the same time, an increase in internal borrowings by UAH 184.9 billion is planned. The total financing of debt transactions increases by UAH 250 billion.

Against the background of these changes, a critical innovation appears: in Article 5 of the draft law of the Ministry of Finance, it is allowed to exceed the limit of the state debt by the amount of loans raised under international agreements. These funds should be returned not from the state budget, but from alternative sources, including revenues from frozen Russian assets. This creates a mechanism where debt obligations can grow without a corresponding item in the budget.

In addition, the new Article 53 introduces another key change: the government will be able to manually reduce or increase the expenditures of the main managers, especially in the security and defense sector, every month based on the report on the execution of the general fund of the budget. If necessary, it is allowed to open new budget programs without amending the law on the budget.

A separate norm provided for in Article 7 increases the living wage for calculating the salaries of prosecutors from August 1, 2025, from UAH 1,600 to UAH 2,102. This directly raises the salaries of district prosecutors from 40,000. UAH up to 52.5 thousand UAH

Another innovation is changes in the field of gambling. Article 24 stipulates that funds received from gaming business licenses and lotteries, in the period from August 1 to December 31, 2025, should be used exclusively for the purchase of special machinery and equipment. Thus, the income of the gambling business is excluded from the effect of the limitation of clause 5-1 of part 4 of article 30 of the Budget Code. In connection with the liquidation of the Gambling and Lotteries Regulatory Commission (KRAIL) and the creation of the new PlayCity State Agency, all rights, property and budget programs are transferred to the Ministry of Digital Transformation. It is about UAH 76.2 million for management and management in the field of regulation and UAH 84.2 million for the creation of the State System of online monitoring and registers.

The package of changes also provides for additional financing in the field of energy efficiency. In particular, UAH 240 million will be directed to the Energy Efficiency Fund for the implementation of projects to modernize the housing stock and restore condominium buildings damaged by the war. This is co-financing within the framework of programs with the EU and the German government, where the Ukrainian share is 20%.

To cover this amount, it is proposed to reduce funding to the Ministry of Energy under the coal industry restructuring program by the same amount — UAH 240 million. The reasoning is as follows: of the six state mines for which support was planned, Ukraine lost control over three, so the funds are being redistributed.

How changes to the 2025 State Budget rewrite the balance of power and responsibility

The government’s proposals to the State Budget of Ukraine for 2025 not only change its macroeconomic parameters, but also radically reformat the very logic of the budget process. In the conditions of war, the state is gradually moving from a parliamentary-controlled model of the distribution of finances to a government-centralized system, where efficiency and political expediency prevail over predictability, transparency and responsibility.

The government gets the right to redistribute billions among the main managers of funds during the year without consultation with the parliament. This is formally justified by military risks, but in practice it creates a dangerous precedent — the exception becomes the rule. Changing priorities does not require a separate law or political responsibility for the consequences of such decisions. In the long term, this erodes the role of the Verkhovna Rada as a budget control body and strengthens the vertical of the Cabinet to a level not provided for by the Constitution in peacetime.

The institutional content of the new articles of the law is also a marker of the change of era. The Ministry of Defense receives a significant expansion of powers due to a new scheme for administering the “military personal income tax” through the Defense Procurement Agency, a body whose head is politically close to the head of the ministry. In effect, this means creating a closed money management system that has limited accountability to external institutions. In combination with the new mechanism of “manual” change of expenditure items, this increases the risks of misdirected spending of funds under the guise of defense expediency.

Another trend is the incorporation of new beneficiaries who are not directly related to the Armed Forces into the budget architecture. Additional funds are received by the Ministry of Internal Affairs, digital transformation, health care, education, and the energy efficiency fund — with formulations that do not always have direct military logic. Against this background, there is a risk of replacing real defense support with spending on structural or politically motivated initiatives. If new resources are absorbed by political projects under the label “for the needs of the war”, then the clear line between the justified needs of the army and fiscal loyalty to the chosen sectors disappears.

Another significant change is the creation of a mechanism by which the public debt can increase without increasing the corresponding budget burden. We are talking about permits to attract loans that will not be repaid from the state budget, but from so-called alternative sources. This includes expected revenues from frozen Russian assets. The problem is that the legal and practical basis for the use of these assets is weak, short-term, and dependent on the international situation. Today, the budget sets expenses based on revenues that remain within expectations. Such a move creates the illusion of stability at the expense of future uncertain events, increasing fiscal risks.

In the medium term, such a financial model has three consequences. The first is the technocratic blurring of the boundaries between the peace budget and the war budget. If under the definition of “defense sector” it is possible to finance almost any sphere with the necessary political sign, then the category itself loses its clarity. The second – budgetary control, based on parliamentary procedures and open discussions, becomes a formality. The third is that the growth of the national debt in the conditions of a reduction in international aid will inevitably lead to a shift in fiscal pressure to internal sources: citizens, businesses, and local budgets.

For Ukrainians, this means several things. First, the tax burden will not decrease, but will most likely increase, especially against the background of insufficient external assistance. Second, social spending may remain on the margins of budgetary priority, giving way to institutional programs without direct military expediency. Thirdly, the mechanisms of public control over spending are weakening, which can lead to growing distrust of the state, especially in the case of detection of inefficient use of resources.

For the state, in the conditions of war, budget flexibility is an absolute value, but when flexibility turns into opacity, and exceptions into systemic management mechanisms, it not only changes the logic of war financing, but also forms a model of statehood, where the levers of management are concentrated in the government without proper institutional restraint.

It is predicted that this trend will continue in the future – the budget will become more and more “manual”, and publicity and discussion of priorities will focus only on basic figures. Instead, real allocations of funds will take place behind the scenes – by monthly decisions of the government. In such conditions, the need for an independent financial audit, parliamentary monitoring, and civil society participation in the control of state expenditures increases.

In conclusion, the draft law on changes to the 2025 budget means not just adaptation to the military economy, but a systemic transformation of the very logic of state financial management. For the state, this is a shift in the balance in favor of the executive vertical and a weakening of parliamentary control. For society – the erosion of transparency and the complication of public control. For the economy, there is an increase in fiscal risks and a debt burden without guarantees of return. Unless these exceptions are time-limited or legislated as temporary emergency measures, we risk a permanent pattern of off-balance sheet, non-public management of public resources.