Russia plans to significantly increase its defense budget, implement new tax hikes, and cut education spending in 2027, according to a budget draft for 2027-2029 submitted by Russia’s Finance Ministry, the government body responsible for preparing the budget proposal, on September 24, 2026. The move comes as the war in Ukraine continues into its fifth year, placing increasing financial strain on Moscow.
The proposed budget allocates a record 17.1 trillion rubles (approximately $202.58 billion) for defense in 2027, a 27% increase from the 13.5 trillion rubles initially budgeted for that year. This substantial rise is part of Russia’s focus on funding its military operations and defense-industrial base amidst the ongoing conflict.
To help finance the increased spending and address a growing deficit, the budget draft includes several new tax measures. These include a progressive income tax rate ranging from 13% to 22% on passive income, such as dividends, bank deposit interest, earnings from securities, property sales, and insurance payments. New taxes on e-commerce and corporate profits are also proposed. While the draft indicates cuts to the education sector’s budget, specific figures detailing the extent of these reductions have not yet been released.
The overall financial outlook for 2027 projects total expenditures of 48.8 trillion rubles against revenues of 43.3 trillion rubles. This anticipates a federal budget deficit of 5.5 trillion rubles ($65 billion), a 72% increase compared to estimates from a year prior. Russia’s Finance Minister Anton Siluanov stated that these measures are necessary to ensure the country’s economic stability and support its strategic objectives.
Context of the Ukraine War
The Russia-Ukraine war, which began with Russia’s full-scale invasion on February 24, 2022, has entered its fifth year. The conflict has intensified with both sides escalating long-range attacks. The financial burden of the war has significantly impacted Russia’s economy, leading to a depletion of its National Welfare Fund, whose liquid assets have fallen from 9.7 trillion rubles in February 2022 to 4 trillion rubles currently. Russia has also increasingly relied on gold reserves to cover its budget deficit.
Economic Projections and Next Steps
Russia’s Finance Ministry anticipates a GDP growth of 1.4% in 2027, although this is higher than the Central Bank’s estimate of 1.2% and the OECD’s projection of 0.6%. The ministry also expects inflation to fall to its 4% target by the end of 2027, a stark contrast to household inflation expectations which reached 14.2% in September. The budget plan also sets a baseline oil price of $50 per barrel for 2027-2030.
The full draft of Russia’s 2027 federal budget still needs to be submitted to the State Duma, Russia’s lower house of parliament, for approval and a vote. Russia aims to achieve a zero primary structural budget deficit by 2029. President Putin has also indicated that rising global oil prices in the coming months could boost Russia’s oil and gas revenues, potentially allowing the government to replenish the National Welfare Fund. An OPEC+ meeting on October 6, 2026, will discuss oil markets and quota compliance, which could influence global oil prices.
While the budget outlines broad financial strategies, detailed figures for specific defense expenditures remain largely classified. The exact impact of the proposed education cuts and the effectiveness of the new tax measures in balancing the budget are also yet to be fully seen. The duration and resolution of the Ukraine war remain significant unknowns that will heavily influence Russia’s economic trajectory.
