Russia plans to increase defence spending to a record level since the dissolution of the Soviet Union, while cutting civilian programs and raising taxes. This indicates that the Kremlin is preparing for a prolonged war in Ukraine.
The draft budget for 2027 allocates 17.1 trillion rubles (approximately $205.2 billion) for defence, 26 percent more than the amount previously planned for that year and 375 percent more than the pre-war level in 2021. Defence spending will account for roughly one-third of all federal expenditure.
Analysts say Russia still has the financial resources to continue the war, but the increasingly high cost will place a growing burden on households, businesses, and public services, The Moscow Times reports.
Russia’s budget deficit reached 5.65 trillion rubles in 2025, or 2.6 percent of gross domestic product (GDP). The government expects the deficit to reach 7.3 trillion rubles in 2026 before falling to 5.4 trillion rubles, or 2.2 percent of GDP, in 2027.
To finance the deficit, Moscow plans to borrow 6.1 trillion rubles next year, compared with 5 trillion rubles in 2026. Meanwhile, debt servicing is expected to cost 4.6 trillion rubles in 2027.
Russia is also planning cuts to civilian sectors. According to the draft budget, funding for healthcare will decrease by 5.5 percent, education by 5.4 percent, and social programs by 6 percent, compared with the amounts previously planned for 2027.
At the same time, the government aims to collect an additional 1.5 trillion rubles through tax increases. Among the proposed measures is a 22 percent value-added tax (VAT) on purchases from foreign online sellers, as well as a 100-ruble customs fee on packages worth less than €200.
Taxes on income from deposit interest, dividends, and property sales are also expected to increase from the current 13–15 percent range to between 13 and 22 percent. The Finance Ministry has also proposed a one-time tax on the profits of companies in the mining and metals sectors.
Meanwhile, analyst Alexandra Prokopenko has warned that the government may be approaching the limit of how much additional revenue it can raise through tax increases to finance the war. This could increase pressure on the Central Bank to cut interest rates and ease borrowing costs for the government and businesses.
