Under pressure from record defense spending and declining oil and gas revenues, Moscow is preparing a new budget with tax increases and cuts in civilian spending. Economists warn of a recession risk, while Russia allocates over 40% of its funds to the war against Ukraine.
This is reported by UNN with reference to Reuters.
Details
"Moscow is preparing to raise taxes and cut spending in an attempt to maintain high defense spending as Russia's economy cracks under the strain of financing more than three years of war in Ukraine," officials and economists say.
Putin has dismissed suggestions that the war is killing Russia's economy, but the budget deficit is growing due to rising costs, while oil and gas revenues are shrinking under pressure from Western sanctions, the publication notes.
Long-awaited talks between the Russian president and his American counterpart Donald Trump in Alaska last week did not lead to a ceasefire.
(This) gave Moscow, which would prefer to move immediately to a peaceful settlement, a strategic boost, but also a headache in terms of costs
The Russian economy is slowing down, and a number of officials warn of the possibility of a recession.
Despite a gradual reduction in interest rates from 20-year highs, the budget deficit has already reached 4.9 trillion rubles ($61 billion). This indicates that it will be increasingly difficult for Russia to meet its financial obligations and maintain the current level of war funding.
Given the more pessimistic estimates of economic indicators and declining oil and gas revenues, we will need to urgently begin fiscal consolidation
Russia's budget expenditures have doubled since the invasion of Ukraine
Russia's budget expenditures since the invasion of Ukraine in February 2022 have almost doubled in nominal terms. Such a massive fiscal injection has fueled inflation and forced the Central Bank to raise the key rate to 21%, which significantly increased the cost of corporate borrowing.
In 2025, total defense and security spending reached 17 trillion rubles - the highest level since the Cold War, the publication indicates. They account for 41% of all budget expenditures, making the military sector the main driver of economic growth amid a decline in civilian production.
Despite Putin's statement in June about his intention to cut military spending, officials currently predict their further growth.
We cannot cut national defense spending and... most likely, we will have to increase it
Less convenient
Russia's budget for 2025 provides for defense spending at 8% of GDP, but government sources admit that the actual figure is even higher. No cuts are planned for 2026, and they are possible in 2027 only if hostilities end.
Even if there is a ceasefire, shells and drones will still need to be produced, but on a somewhat smaller scale
Analysts predict a redistribution of funds: Artamonov estimates annual non-defense spending cuts at 2 trillion rubles, and former deputy head of the Central Bank Sergei Aleksashenko expects tax increases and a reduction in real social spending.
The Ministry of Finance is already preparing austerity measures: Minister Anton Siluanov called for "being modest," and his deputy Pavel Kadochnikov emphasized that spending on the army and their families remains a priority.
This year's budget deficit could reach 5 trillion rubles (2.5% of GDP), and according to pessimistic forecasts – up to 8 trillion.
The Russian economy is struggling with high interest rates and ongoing hostilities
Although Putin calls the budget stable, experts talk about inevitable tax changes and a long period of weak growth.