Moscow – Russian President Vladimir Putin signed the federal budget law for 2025-2027, with record spending on defense and military needs.
In 2025, Russia is scheduled to spend about $126 billion on national defense, which is equivalent to 32.5% of government spending.
Thus, defense allocations rise by about $28 billion from the previous record recorded this year, amid government expectations of a slight decline in military spending for the years 2026 and 2027.
Overall, this increase represents more than the funding pledged for health care, education, social policy and the national economy combined.
Cover costs
To cover these costs, starting in 2025:
- Russia will increase income taxes
- Taxes on small and medium-sized businesses will increase
- It will raise taxes on gas, oil and coal production
- Excise taxes on alcohol, cigarettes, sugary drinks, etc. will rise.
According to the Association of Exporters and Importers of Russia, next year the prices of all products will rise by about 20%, and the prices of housing and communal services by 10%.
Income and expenses
- According to the law, federal budget revenues in 2025 are expected to reach about $378.5 billion, in 2026 about $393 billion, and in 2027 about $405.34 billion.
- It is also expected that expenditures in 2025 will reach about $389.52 billion, in 2026 about $413.5 billion, and in 2027 about $431.3 billion.
- The federal budget deficit will reach $11.02 billion in 2025, $20.5 billion in 2026, and $25.9 billion in 2027.
- The sizes of the National Welfare Fund for the next three years are set to account for growth from 5.2% to 6% of GDP.
National debt service expenditures were approved for the next three years, while the main priorities of the budget are the state’s fulfillment of all social obligations towards its citizens, ensuring security and defense of the country, achieving technological sovereignty and developing infrastructure, as well as social policy.
The approval of the new budget comes at a time when the end of the year has become a period of instability for the Russian economy, as the exchange rate of the dollar against the ruble exceeded 107 rubles, the highest level since March 11, 2022.
Balancing confrontation
Economist Victor Lashon believes that the approval of the new budget at a time when the Bank of Russia raised interest rates to a historic record level of 21% indicates an acceleration in inflation that exceeds last year’s level.
Lashon, in a comment to Al Jazeera Net, does not rule out the possibility that public and private companies will go bankrupt and some factories will stop production in the future, adding that the danger is not limited to recession, but rather to stagflation.
The term recession refers to a decline in demand for goods and services while prices remain at their normal levels. If prices increase while demand declines, it becomes stagflationary.
But Lashon points out that the choices the government is taking at the present time, even if they seem out of the ordinary, at the same time express the continuation of the approach to confronting sanctions because the country’s fate now depends on its ability to endure, albeit at a great economic price.
It is likely that the deficit will be covered mainly through internal government borrowing.
Lashon says that allocating a third of the budget to military needs is considered record spending, but it comes in the context of the ongoing war with Ukraine, “the largest conflict in Europe since World War II,” and could lead to pressure on the economy and population, in contrast to Ukraine, which receives billions of dollars in aid from Its Western allies.
balance
For his part, Andrei Zaitsev, a writer in economic affairs, says that the draft budget, before it became law, was discussed for several months in the Duma and the representatives presented about a thousand amendments to it.
In his opinion, this clearly emerged through the government updating and significantly expanding the list of national projects, as a main tool for achieving the country’s development goals, which included the family and children sector, infrastructure, transportation, environmental well-being, the data economy, the digital transformation of the state and means of production, food security, health, and others.
According to his estimate, the economy will continue to grow at about 2.5% annually and inflation will remain at 4%, with expectations that the cumulative GDP growth in the period 2025-2027 will reach 7.7%, which is a higher economic growth rate than the central bank’s basic scenario.
He adds that the approval of the budget came at a time when the Russian macroeconomic team received great praise for its management of the economy so far, after it was expected to collapse after imposing harsh sanctions on it in the first week of the war, freezing the Russian Central Bank’s reserves amounting to 300 billion dollars, and preventing Russia from using… SWIFT system for cross-border money transfer.
