Russia’s plan to raise its value-added tax, or VAT, to fund soaring defense and security spending is expected to drive consumer prices up by around 1% next year, Finance Minister Anton Siluanov said on Monday.

“VAT may affect company financial results. Its impact on inflation is estimated at around 1%, which has been accounted for in wage and social payment indexation projections,” Siluanov told lawmakers from Russia’s upper-house Federation Council.

The Finance Ministry last month proposed raising the VAT rate from 20% to 22% starting next year to help close a widening budget deficit amid record military spending. The deficit is forecast to reach 5.74 trillion rubles ($69 billion), or 2.6% of GDP, in 2025.

Earlier, T-Investments chief economist Sofia Donets said the overall impact of the proposed VAT rate increase could be inflation of around 1.5% in the first months of next year, as companies adjust prices to maintain their margins and pass costs on to consumers in advance.