The Russian government is preparing to raise taxes and cut spending, trying to maintain a high level of defense spending amid a slowing economy.

This was reported by Reuters, citing unnamed Russian government officials.

A source in the Russian government said that a new tax increase is inevitable.

“Otherwise, we simply will not be able to make ends meet, even with a reduction in defense spending. Oil and gas revenues are falling, and the economy cannot fully compensate for this,” the agency’s interlocutor said.

He noted that Russia does not plan to reduce defense spending in 2026, this is possible only in 2027 if hostilities cease.

“Even with a ceasefire, shells and drones will still need to be produced, but on a somewhat smaller scale… There will be no return to the level that existed before (the war in Ukraine, – ed.),” the Russian official explained.

Russian dictator Vladimir Putin has previously denied that the war is killing Russia’s economy, but Russia’s budget deficit is growing due to increased military spending, while oil and gas revenues are shrinking under the pressure of Western sanctions.

Russia’s budget spending has almost doubled in nominal terms since Russia’s invasion of Ukraine in February 2022, fueling inflation and forcing the central bank to raise rates to 21%, sharply increasing the cost of corporate loans.

The combined spending of 17 trillion rubles on defense and national security in 2025 is the highest since the Cold War, accounting for 41% of total spending, making the defense sector a major driver of economic growth as civilian production declines.

But Russia’s oil and gas revenues are shrinking. Analysts expect Russia’s budget deficit, which rose to 4.9 trillion rubles ($61 billion) in January-July, exceeding the annual target by more than 1 trillion rubles, to be even larger than planned.

A Reuters government source estimates this year’s deficit at around 5 trillion rubles, or 2.5% of GDP. However, Russian analysts suggest it could rise to 8 trillion.

“The Central Bank is in no hurry to lower the key rate, in particular because the budget deficit may be higher than planned,” said a senior Russian official close to the Ministry of Finance.

Finance Minister Anton Siluanov hinted at austerity measures back in April, advising his government colleagues to “be modest in their desires” regarding spending.

“Given the more pessimistic assessments of economic indicators and the decline in oil and gas revenues, we will need to urgently begin fiscal consolidation,” said Anatoly Artamonov, chairman of the Federation Council’s budget committee, in late July.

He also suggested that Russia may have to cut non-defense spending by 2 trillion rubles each year by 2028 and redirect those funds to the defense budget.

“In the next three years, we will not have enough money to live as comfortably as we do now,” Artamonov noted.

As reported, the deficit of the Russian federal budget continues to grow rapidly. Thus, in July it increased by 1.2 trillion rubles. and after seven months amounted to 4.9 trillion rubles. – and this is much more than was planned for the whole year (3.8 trillion rubles). 

Author:  Mykhailo Orlyuk Джерело: https://censor.net/n3569645

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