When the State Duma passed Russia’s 2026-2028 federal budget on November 20, 2025, it wasn’t just a fiscal document—it was a confession. The numbers didn’t lie: Russia is spending nearly half a trillion dollars a year on war, and the burden is falling squarely on its own people. Finance Minister Anton Siluanov called it ‘structurally balanced.’ But balance implies choice. And this budget? It had none.
War, Not Welfare, Is the Priority
Defense and security spending will eat up 16.8 trillion rubles—$209.5 billion—nearly 38% of the entire federal budget in 2026. That’s more than the combined budgets of Germany’s defense and education ministries. Defense spending dips slightly from 13.4 trillion to 12.6 trillion rubles, but national security and law enforcement jumps 13% to 3.91 trillion. The net effect? A barely noticeable 0.6% drop in the overall war machine. Meanwhile, family support gets over 10 trillion rubles, and a mere 50 billion rubles flows to a state charity for soldiers’ families. The math is brutal: for every ruble going to children’s meals, nearly two go to bullets and drones.
What’s striking isn’t just the scale—it’s the continuity. From 2022 to 2024, Russia spent roughly 10% of its GDP on war. That’s now settling into a new normal: 8% of GDP through 2028. The Kremlin isn’t winding down. It’s institutionalizing war.
The Tax Trap: VAT Hike and the Hidden Cost
To plug the 3.8 trillion ruble ($47.3 billion) deficit, the government is raising the value-added tax from 20% to 22%. That single move is expected to bring in 1.2 trillion rubles—nearly all of it earmarked for defense. VAT hits everyone: the pensioner buying bread, the factory worker paying for gas, the mother buying diapers. It’s regressive by design. And it’s working. The Finance Ministry estimates all tax changes will raise 1.8 trillion rubles, though economist Dmitry Polevoy of the Higher School of Economics says it could be as high as 2.9 trillion.
Here’s the twist: Russia’s budget assumes oil will sell for $70 a barrel. But sanctions have already cut off 60% of its European energy exports. The Anadolu Agency reported a $51.9 billion deficit in just the first 10 months of 2026. That’s not a forecast—it’s a reality. The budget is built on sand.
History Is Repeating Itself
Look back at autumn 2022. The Kremlin projected modest defense increases. Then came the surge. Defense spending tripled in 18 months. The Bank of Finland warns this year’s budget mirrors that pattern. The 4.2% drop in defense spending? A mirage. The real growth is in reserve funds—money the military can spend without parliamentary oversight. Salaries are rising. Logistics are expanding. The Carnegie Endowment for International Peace found the biggest increases are in ‘reserve contributions,’ giving commanders free rein to redirect cash. That’s not austerity. That’s stealth escalation.
And the numbers? They’re already outdated. In 2025, the government projected a 0.5% GDP deficit. By June, it was 1.7%. By December, it hit 2.6%. This year’s projection of 1.6%? The Center for European Policy Analysis calls it ‘optimistic fiction.’
What’s Really Being Cut
Infrastructure? Down 7%. Healthcare? Frozen. Education? A 1.2% real-term cut after inflation. Meanwhile, the military gets more flexibility, more money, more autonomy. The state is effectively crowding out private investment. Interest rates stay high because the central bank is forced to monetize debt. Businesses can’t borrow. Workers can’t save. And yet, the budget claims a 4% inflation target. Good luck with that—prices for staples rose 11% last year.
It’s not just spending. It’s signaling. Every ruble allocated to soldiers’ families is a photo op. Every ruble spent on drones is a weapon. The Kremlin doesn’t need to say it out loud: the war is permanent. The budget is its manifesto.
What Comes Next
By 2027, defense spending will rise again. The State Duma’s three-year plan isn’t a roadmap—it’s a countdown. The Carnegie Endowment says Russia will maintain 8% of GDP for war through 2028. That’s more than the U.S. spends in peacetime. More than China spends on defense. And it’s all being paid for by a population already stretched thin by inflation, emigration, and stagnation.
There’s no sign of negotiation. No hint of retreat. Only more taxes, more debt, more silence from the public. The Russian people aren’t just paying for the war. They’re being asked to believe it’s sustainable. And that’s the most dangerous part.
Frequently Asked Questions
How is the VAT increase affecting ordinary Russians?
The VAT hike from 20% to 22% is hitting everyday goods hardest—food, medicine, utilities, and public transport. Since VAT accounts for nearly 40% of state revenue, this tax is unavoidable. A family spending 10,000 rubles monthly on essentials will pay an extra 200 rubles per month—over 2,400 rubles a year. For many, that’s a week’s worth of groceries. The Finance Ministry admits this revenue is ‘earmarked for defense,’ meaning every purchase helps fund the war.
Why does defense spending appear to drop in 2026 if the war is continuing?
The drop is superficial. While official defense spending falls from 13.4 to 12.6 trillion rubles, national security spending rises 13%, and ‘reserve contributions’—funds controlled directly by military commanders—expand significantly. These reserves allow units to bypass budget controls, buy equipment on the black market, or pay irregular forces without oversight. The total war budget, in reality, barely budges. The Kremlin is using accounting tricks to create the illusion of restraint.
What role do sanctions play in Russia’s budget crisis?
Sanctions have slashed Russia’s access to European energy markets, cutting oil export revenues by an estimated 30-40% since 2022. With crude prices now projected at $70/barrel—down from $72—the government can’t rely on energy windfalls. That’s forced it to turn to domestic taxes and central bank money printing. The result? A $51.9 billion deficit in just ten months of 2026, and inflation that’s outpacing wage growth by 6 percentage points.
Is the Russian economy sustainable at this spending level?
Not without collapse. Military spending is now 8% of GDP—higher than during the Cold War peak. Private investment is falling as state borrowing crowds out credit. The Central Bank’s interest rates remain near 20% to curb inflation, killing small business growth. With 2.5 million people having left the country since 2022, labor shortages are worsening. Economists warn the economy is now a war economy—no longer producing for growth, but for survival. A major oil price shock or new sanctions could trigger a full systemic crisis.
Why does the government claim the budget is ‘structurally balanced’?
‘Structurally balanced’ is a euphemism. It means the deficit isn’t being financed by printing money this year—but by borrowing from the Central Bank and raising taxes. The government is avoiding hyperinflation, yes, but it’s doing so by extracting wealth from citizens rather than reducing military spending. It’s not balance—it’s delayed collapse. The term is used to reassure markets and the public, even though the underlying reality is unsustainable.
What does this budget mean for Russia’s future after 2028?
If defense spending remains at 8% of GDP through 2028, Russia will have spent over $1.2 trillion on war since 2022. That’s more than the entire GDP of Poland or Saudi Arabia. There’s no plan for reconstruction, no investment in innovation, no recovery strategy. The budget assumes war is permanent. That means no demographic rebound, no technological leap, no economic revival. Russia isn’t preparing for peace. It’s preparing for a generation of austerity—and silence.
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