On 15 September 2025, the Cabinet of Ministers of Ukraine submitted a draft law of Ukraine ‘On the State Budget of Ukraine for 2026’ (reg. no. 14000) to the Verkhovna Rada of Ukraine.

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The document outlines the key parameters of public finances and establishes the amount of financial resources allocated to supporting local self-government. The draft law establishes mechanisms to ensure the stability of local budgets and the amounts of basic and reverse subsidies, as well as educational and medical subsidies. It also introduces new instruments for infrastructure restoration and regional development.

The Draft State Budget of Ukraine for 2026 prioritises financing social programmes, housing renovation, the modernisation of educational facilities, support for veterans and the implementation of state investment projects. In preparation for the analysis of the Draft State Budget of Ukraine for 2026, together with Ihor Onyshchuk, an expert from the Swedish-Ukrainian Polaris programme ‘Support for Multi-Level Governance in Ukraine’, we have created an infographic summarising the key indicators and areas of state support for local communities. The infographic is designed to clearly demonstrate the main volumes of financial resources provided for in the draft budget, as well as their impact on the development and restoration of local self-government.

 

 

The Draft State Budget for 2026 consolidates many of the decisions made the previous year. It also demonstrates a shift in focus towards supporting areas worst affected by the war, as well as creating mechanisms for further recovery.

Personal income tax (PIT)

One of the main sources of revenue for local budgets is personal income tax. The Draft Budget for 2026 outlines several significant changes.

Firstly, the transfer of 4 per cent of personal income tax to the state budget is being reinstated. This tax was previously temporarily allocated to the budgets of rural, settlement and urban communities. This will result in a reduction of approximately UAH 15.2 billion in local budget resources, which will be allocated to the general fund of the state budget for defence purposes.

Secondly, the PIT from the monetary allowances of military personnel, police officers, and other law enforcement officers will no longer be allocated to local budgets, but to a special state budget fund. This means that communities will lose an important source of income that constituted a significant part of their revenues in previous years.

Education subsidy

The level of educational subsidies has remained at the 2025 figure. This means that resources for financing general secondary education are not actually increasing. In the context of rising inflation, this could present challenges for communities. However, the Government has promised to increase salaries by 50 per cent. This is why the Draft State Budget for 2026 includes a separate budget programme for the Ministry of Education and Science of Ukraine called ‘Improving the Prestige of Work in the Field of Education’, with funding of UAH 53.8 billion.

In addition, the Ministry of Education and Science has announced that it is impossible to distribute subsidies fairly and accurately due to a lack of verified data on student numbers, significant migration processes, and the absence of new criteria. This creates uncertainty for local budgets, particularly in communities experiencing significant population movement. Consequently, the education subsidy will be distributed at a later date.

Support for veterans and demobilised persons

Funding for programmes supporting veterans and demobilised individuals remained at last year’s level. While this guarantees continuity of support, it does not take into account the growing number of people in need or the expansion of necessary services. Communities will continue to play a key role in establishing veteran spaces and delivering social services, but without extra funding, the implementation of such programmes could be restricted.

Additional subsidy for de-occupied, temporarily occupied and affected territories

The Government has retained an additional subsidy of UAH 36.05 billion, which is crucial for maintaining the stability of local budgets in frontline and affected regions. The Government has currently allocated UAH 17.0 billion across three main areas:

• UAH 5.35 billion: for communities located in temporarily occupied territories. These funds are needed to cover minimum expenses based on their budget performance indicators for 2024.
• UAH 4.47 billion: for communities and regions included in the list of territories where combat operations are ongoing or have been ongoing, and with no end date of combat operations set. For local budgets, this subsidy is calculated as 5 per cent of the PIT included in the 2026 equalisation, and for regional budgets – according to the current PIT crediting standards.
• UAH 7.21 billion: for communities with low tax capacity (an index of less than 0.9). The aim of the subsidy is to strengthen their financial resources so that they are not in a worse position in 2026 than in 2025. The calculation takes the following into account:

Excise tax

• 13.44 per cent of the excise tax on fuel remains in the budgets of communities, with the remaining 86.56 per cent going to the state budget
• Plans are in place to gradually align the excise tax rates on tobacco and fuel with EU levels, which will also impact community revenues

Fund for the elimination of the consequences of aggression

The Draft Budget provides for the creation of a Fund to Eliminate the Consequences of Aggression. This Fund will finance compensation for destroyed housing, the restoration of critical infrastructure, and the completion of projects from previous years. This step will systematise restoration costs and prevent funds from being dispersed across different programmes.

Other local budget revenues

• Part of the rent payment and environmental tax will continue to be credited, but the rates will not be indexed for 2026.

Road infrastructure

No funding is planned for local or municipal roads in 2026. This restricts communities’ ability to improve transport accessibility in their territories. Instead, UAH 12.9 billion has been allocated to developing and maintaining public roads of national importance, which suggests that the national road network is considered more important than the local one.

The Reserve Fund has been reduced, which limits the Government’s flexibility in responding to emergencies. The Active Parks programme is not included in Draft State Budget of Ukraine for 2026, which could indicate a shift in the Government’s approach to supporting healthy lifestyles and sports infrastructure.

Conclusions

In 2026, the financial resources available to communities will be limited due to the withdrawal of part of the PIT and the reallocation of military PIT revenues to the state budget. Although the fuel duty remains with the communities, its contribution is small, and other taxes will not provide significant growth. The financial stability of communities will therefore depend largely on the Government’s decisions regarding grants and subsidies. This increases the risk of communities becoming dependent on subsidies, particularly those in frontline and affected areas. Conversely, the Government guarantees mechanisms to support such communities through additional subsidies. Overall, local budgets will remain vulnerable in 2026 and their financial autonomy will be significantly reduced. At the same time, the document emphasises that this situation is temporary and due to military needs, as funds from seized sources are primarily directed towards security and defence.

Thus, the Draft State Budget of Ukraine for 2026 shows that the Government wants to keep key social and recovery programmes at the same level as last year; while improving the way resources are given to communities with different financial situations. On the one hand, maintaining additional subsidies and separate subventions provides local authorities with a certain degree of predictability. However, the absence of additional expenditure growth in the context of inflation and military challenges could result in a shortage of resources at the local level. Support for education, veterans, affected territories and housing reconstruction remains a priority, while the development of local road infrastructure and certain social initiatives takes a back seat.