Fiscal discipline as Ukraine’s real test on the road to EU membership

Ukraine’s European integration is no longer defined by political declarations. It is increasingly a question of fiscal capacity. In the context of Russia’s war, a deep budget deficit and large-scale external support, public finances have become a key indicator of whether the country is ready to operate under EU rules.

ADVERTISEMENT

ADVERTISEMENT

Ukraine’s post-war recovery is already shaping up to be the largest publicly financed reconstruction effort in Europe in decades. For the EU, this makes not only the volume of assistance important, but also how effectively and transparently these funds are used.

Fiscal discipline therefore sits at the core of two key accession dimensions: Public Finance Management and the Economic Criteria.

Ukraine is not starting from scratch. In recent years, the country has shown that systematic de-shadowing of the economy can deliver fast and measurable fiscal results. The challenge now is to scale these gains into a coherent system.

From emergency budgeting to European rules

Russia’s aggression has forced Ukraine into an emergency fiscal regime, with a large share of spending directed toward defence and deficits covered by external support. EU membership requires a different approach: predictable fiscal policy, medium-term planning, clear expenditure limits and accountability for results.

The budget must operate on performance rather than inertia, with clear efficiency criteria and the readiness to discontinue ineffective programmes.

Ukraine Facility as a test of fiscal capacity

The €50 billion Ukraine Facility links funding to concrete reforms and measurable milestones. For Ukraine, the key task is to embed this logic into its own system of fiscal governance. All recovery programmes, regardless of funding source, must operate under a unified framework with clear Key Performance Indicators (KPIs), defined timelines and transparent accountability.

Spending reviews as a prerequisite for trust

Spending reviews are a standard tool across EU member states. They enable governments to assess programme effectiveness and reallocate resources in line with strategic priorities. For Ukraine, this is essential.

The country is financing defence, social obligations and reconstruction simultaneously. Without systematic expenditure reviews, efficient use of limited resources is not achievable.

De-shadowing as a real fiscal resource

Recent years have shown that de-shadowing the economy can generate substantial revenues without raising tax rates. The most striking case is the gambling sector. Just a few years ago, it was almost entirely opaque. In 2021, the budget received only €6.3 million in tax revenues from the sector, rising to €21.5 million in 2022.

Following the introduction of licensing, fiscalisation of transactions and strengthened tax control, the situation changed dramatically. Revenues reached €262.9 million in 2023 and €391.2 million in 2024. In just three years, tax payments increased more than eighty-fold. This demonstrates how an effective regulatory framework and digital oversight can transform a shadow sector into a significant source of public revenue.

Similar gains came from tackling shadow agricultural exports, generating €83 million in additional revenues in 2024 and €183 million in 2025. De-shadowing excise markets increased alcohol tax revenues by 43.5% compared to 2021, adding €80 million. In the fuel sector, reforms delivered about €131 million in 2024 while significantly improving tax efficiency.

At the same time, systemic tax avoidance persists. Cases involving the misuse of simplified tax regimes by large businesses highlight the need for further reform.

The conclusion is clear. Ukraine’s fiscal reserves lie less in raising tax rates and more in bringing economic activity out of the shadows. Continued de-shadowing must therefore become a central element of fiscal convergence with the EU.

Tax policy in the logic of accession

In European practice, fiscal resilience depends less on higher taxes and more on efficient spending and fair administration. Ukraine must follow the same sequence: reduce inefficient programmes and de-shadow the economy first, then move to a discussion on tax hikes.

For Ukraine, fiscal discipline is not a technical requirement. It is a matter of trust. European taxpayers are financing a significant share of Ukraine’s budget during wartime. They expect these resources to be used efficiently, transparently and responsibly. Ukraine has already demonstrated that it can turn de-shadowing into real revenues.

The next step is to translate these successes into a systemic model of fiscal governance aligned with European standards. This will be the real test of Ukraine’s readiness for EU membership, and its outcome will define not only the pace of accession, but also the credibility of Europe’s largest reconstruction effort in decades.