Russia will introduce new taxes.

5.10.2023

The Russian authorities have provided for a 1.7-fold increase in war spending in the draft budget for 2024. They plan to spend almost a third of the entire expenditure budget on this — 29.4%, or 10.8 trillion rubles, which is about $108.3 billion. Analysts are confident that the Kremlin will not be able to find that kind of money without introducing new taxes.

The Financial Times writes about this. An increasingly pressing issue in the Russian Federation is the rapid increase in defense spending, which tripled after the full-scale invasion of Ukraine.

“Putin has two priorities: war and power. That’s why the way the budget process now works is that politicians first make sure the junta gets what it needs for the war, and then turn to the rest of the budget. And to do this, they are constantly looking for new sources to scrape together money,” noted economist and professor at the University of Chicago Konstantin Sonin.

Thus, the Russian Federation budget for 2024 is based mainly on irregular fees, such as the excess profit tax for Russian businesses and the “exit tax” paid by foreign companies leaving the Russian market. The authorities also intend to receive additional revenue from increasing taxes, export duties and excise taxes, reducing subsidies for energy companies and increasing utility tariffs.

However, with a high degree of probability, the revenue portion will still be underfulfilled by 1 trillion rubles. In particular, Sofya Donets, a former employee of the Central Bank of the Russian Federation and chief economist at Renaissance Capital, notes: the budget is based on an overly optimistic forecast.

To plug this hole, Russian authorities will likely introduce additional taxes and fees, analysts say. Donets believes that these will be more and more one-time fees. Also, the Russian Federation will be able to use additional revenues from the sale of energy resources to finance the war.

Donets said cutting spending in non-defense areas is a “last resort.” This is not surprising, because when financing the war is 30% of total budget expenditures, there is simply nowhere to cut other areas.

The fact that the authorities are looking for additional resources is already worrying the richest businessmen, the publication writes. For example, Oleg Deripaska published the following message on his Telegram channel criticizing duties for exporters: “We have a sovereign economy and the growth of citizens’ well-being as priorities (but, it seems, only within “Little Moscow” and on TV). Apparently they want to completely piss everyone off by the New Year.”

https://charter97.org/en/news/2023/10/5/566539/