Russia to Freeze Spending, Hike Taxes to Fund War

According to Bloomberg, the Russian government intends to keep federal spending at an unchanged level next year, while at the same time considering the possibility of raising taxes. The goal is to close the growing budget deficit. The main reason for these tough measures is the huge expenses related to the war and the significant reduction in oil and gas revenues.

The Ministry of Finance plans to stabilize spending by stopping its annual growth, which had been observed since 2022. This means that the government will have to reconsider its priorities, limiting funding in a number of areas.

One of the main tools for filling the budget gap will be the tightening of tax policy. Officials have proposed to increase the value-added tax (VAT) from 2026 and to expand its application to a wider range of taxpayers. It is expected that the VAT rate will increase by two percentage points, reaching 22%. This change, according to the source, could bring an additional income of about 1 trillion rubles ($12 billion) to the annual budget.

In addition to raising taxes, the government is also considering other options. According to two sources, not only a tax increase is being discussed, but also the redistribution and reduction of some expenses, in particular, for civilian programs. This could mean that the social, educational, or healthcare sectors may face funding cuts.

The government plans to submit the draft budget for 2026 to the parliament on September 29. This document will most likely reflect the new realities of the Russian economy, where military needs take precedence over civilian development, and the tax burden on the population and business will increase to ensure the financial stability of the state.