The Russian invasion of Ukraine has shaken the global community and dominated news outlets for more than a month. And there’s no denying that Russia’s war has had an impact on the American economy; inflation has increased drastically, especially for gas prices, due to the sanctions placed on Russia. However, that’s not the only way in which the invasion of Ukraine is impacting the US. With tensions around the world as high as they’ve been in several decades, it’s bound to have an impact on America’s defense budget. Here’s what experts are saying.

Boosting the Budget in 2023

According to Rep. Adam Smith of Washington, the 2023 defense budget is “going to be bigger than we thought. The Russian invasion of Ukraine fundamentally altered what our national security posture and what our defense posture needs to be. It made it more complicated and it made it more expensive. Id don’t see much way to argue it.”

Russia has been far from subtle in its threats against NATO countries, including the United States, and their involvement in the Kremlin’s attach on Ukraine. With widespread bipartisan support of Ukraine and President Volodymyr Zelenskyy, and global condemnation of Russia and their president Vladimir Putin, it’s likely both Democrats and Republicans alike will support an increase in the United States defense budget.

Typically, Republicans push for an increase in military spending each fiscal year, while Democrats tend towards military cuts. However, as Todd Harrison, the director for budget analysis at the Center for Strategic and International Studies, pointed out, “The political reality is that the Russian incursion in Ukraine has created much more support for an increase in the defense budget. At a minimum, I think [Democrats] won’t oppose it because it’s hard to, politically, at this point given what we’re seeing.”

Reuters reported that the budget request for 2023 will include over $800 billion for overall defense spending, with $773 billion of that directed to the Defense Department, according to sources familiar with the negotiations

Will Budget Be Added for 2022?

Of course, 2023 is still a ways off (even though the fiscal year for the government begins in October). Will there be defense budget adjustments for 2022 to reflect the current conflict in Ukraine? In December of 2021, Congress authorized approximately $778 billion in defense spending for fiscal 2022. While it’s unlikely that the Biden administration will edit its budget request for 2022 due to the Ukraine conflict, they could amend their proposal or ask Congress for supplemental funding. Harrison predicted that lawmakers would likely add between $10 and $20 billion without any pushback.

Where Will the Budget Be Spent?

While there’s not currently a clear breakdown of the intended spending for the 2023 defense budget, and still some debate on the spending of the 2022 budget, there are a few places where you can expect to see this money spent. Thousands of American troops have been deployed to Eastern Europe so far this year to help strengthen NATO borders and deter further spread of Russia’s aggressive actions. Should Congress approve more defense funding for the defense budget this year, at least some of it would go to supporting these additional troops; similarly, if increased American military presence continues into 2023, you can expect some of that budget to go towards funding those deployments.

You could also anticipate that some of 2023’s increased defense budget would go towards replacing the weapons and equipment sent to aid Ukraine in their defense against Russia. This has included, so far, anti-aircraft systems, ammunition, body armor, helmets, small arms, and more. And, of course, there’s the distinct possibility that the United States will be increasing our own supply of weapons and equipment as tensions continue to escalate.

What Contractors Need to Know

The US government frequently relies on contractors to manufacture military equipment, including all of the types of weapons and gear described above. With the defense budget increasing, contractors who manufacture and supply these goods should be on the lookout for new opportunities to secure government contracts in the coming year. Ensure that your books are in order, and you’re prepared to undergo the audit that accompanies receiving a government contract.

At Peter Witts CPA, we specialize in helping government contractors keep their books compliant with government standards, so you’re ready if and when new contracts become available. Contact us today to learn more about our DCAA-compliant accounting services, and schedule an appointment with one of our experts.