Russia’s Finance Ministry has unveiled its draft budget for 2027 and plans through 2029. The government is promising to reduce the budget deficit and increase fiscal discipline—not by decreasing the sums being spent on the war, but by introducing new taxes, putting up tariffs, domestic borrowing, and changing the fiscal rule. 

Next year, the budget deficit is forecast to be 2.2 percent of GDP (5.5 trillion rubles). It is expected to hover around 2 percent through 2029. This year, the Finance Ministry estimates the deficit at 3.2 percent of GDP, or 7.3 trillion rubles. Next year’s revenues are expected to reach 43.3 trillion rubles: 4.8 percent more than this year, while spending is set to reach 48.8 trillion rubles, just 0.4 percent higher than this year.

Within the budget, there is record growth on war spending: In 2027, 17.1 trillion rubles has been allocated for defense. That’s 35 percent of all spending and 27 percent more than planned for 2027 in last year’s budget plans. In 2026, the defense budget was 12.1 trillion rubles, but how much has actually been spent is unknown: those figures have been classified since 2022.

It’s equally telling that last year’s plan for 2027 envisaged 46.1 trillion rubles in spending, which has now been increased to 48.8 trillion. In other words, the overall rise in spending is 2.7 trillion rubles, while the increase in defense spending is 3.6 trillion. That means that spending in all other areas has been cut by about 0.9 trillion rubles from the previous plan in order to free up more money for the military.

If national security and law enforcement are added to defense spending, the security services are getting a total of 21.4 trillion rubles: 44 percent of all spending in 2027, and more than twice the 21 percent allocated for human capital (social policy, health, and education).

The budget is drawn up based on economic forecasts, but actual spending next year will clearly be determined by the situation at the front, and not by official documents. This year’s spending plan had already been exceeded in February. 

The most significant developments in this draft budget are the latest rewriting of the fiscal rule, tax hikes, and calibrating the budget to the trajectory of falling central bank interest rates. But changing the fiscal rule does not save a single ruble spent or add a single ruble in revenue. Sanctions and tariff increases will continue to push prices up and keep inflation high. It’s a budget that preserves a two-track Russian economy and dooms it to stagnation.

An Ever-Changing Rule

The fiscal rule governs how much money from oil and gas can be claimed by the state budget, and revolves around two prices: the actual oil price, and the cutoff price, above which the Finance Ministry uses the additional revenue to buy foreign currency and deposits it in the National Wealth Fund (NWF). If the actual price is lower than the cutoff rate, the fiscal rule requires the difference to be compensated for by selling currency from the NWF and putting the resulting rubles into the budget. The point of this mechanism is to stop budget expenditure from fluctuating in line with oil prices. 

In the new budgetary cycle, the cutoff price has been reduced to $50 per barrel. The previous version of the rule had envisaged a gradual reduction of one dollar per year, from $59 in 2026 down to $55 by 2030.

This is the third time the rule has been rewritten in four years. In 2023, baseline oil and gas revenues were uncoupled from the price of oil and were fixed in rubles. In 2025, they were relinked to the oil price and the gradual decrease through 2030 was added. Now that plan is being scrapped.

The difference between the cutoff oil price and the market price determines how much of the deficit the Russian government has to make up out of the NWF reserves. The rest is borrowed. Accordingly, the amount of cash it has to stump up can only be decreased by either increasing the real oil price or lowering the cutoff price written into the rule.

Relocation Over Consolidation

Consolidating the budget requires either spending less or earning more. Judging by the new parameters announced by the government, no significant reduction in ruble-denominated spending is happening. Defense spending is not only ringfenced, it is growing. “The most important thing right now is defense and the front,” Finance Minister Anton Siluanov has said.

Since no additional revenue is being made by reducing the cutoff price, it will have to be made using other methods, such as new taxes on savings and consumer spending, and through inflation, which expands the tax base.

The NWF’s liquid assets currently stand at 3.9 trillion rubles: less than half of the 8.78 trillion held in February 2022. The reduction in the cutoff oil price makes it possible to leave the remaining funds untouched and to cover the deficit by issuing government bonds.

The economic development ministry’s May forecast for 2027 put the market oil price at $50 a barrel, which was later adjusted to $53 in a September update. The state development bank, VEB, had a more conservative forecast of $46 in a baseline scenario and $41 for its stress scenario. In other words, the fiscal rule has been rewritten according to an optimistic prognosis. At an oil price of $53, the Finance Ministry will be buying foreign currency for the NWF while borrowing money at interest rates of 14–15 percent to cover the deficit. Such an operation will cost the budget about 45 billion rubles in pure losses every year.

But regardless of whether the market oil price is high or low, the outcome is more or less the same. If oil prices are high, both the NWF and debt will grow. If oil prices are low, the debt will grow but the NWF will shrink less than it would have done at a higher benchmark price. The fiscal rule doesn’t determine the size of the deficit because it doesn’t cap spending.

Where Are the Cuts?

Officially, the budget pledges to reduce the deficit to 5.5 trillion rubles, or 2.2 percent of GDP, by 2027. But since the war with Ukraine began, budget targets have never been met. In 2025, the target was 0.5 percent of GDP, but in reality the deficit was 2.6 percent. This year, it was set at 1.6 percent, but now the Finance Ministry estimates it at twice that, at 3.2 percent.

While expenditure in 2027 was planned to be 48.8 trillion rubles, it is currently expected to be 48.6 trillion. With annual inflation set to be 5 percent, that amounts to a 4.4 percent reduction in spending in real terms. That is a signal to the central bank that the key interest rate should be lowered.

The budget is effectively an undeclared and uneven sequester. Ringfenced budget priorities are indexed, while the burden of cuts falls on unprotected areas such as infrastructure, civilian national projects, subsidies, and the regions.

The promised deferral for the regions on 300 billion rubles worth of loan payments only confirms that the authorities are still banking on a professional army rather than drafting men against their will, with generous signing-up bonuses coming from regional budgets.

Footing the Bill

Treasury expenditure relies on income from domestic economic activity. In other words, the bill is paid by consumers—at both the household and business level. Further tax hikes are difficult: since 2025, income tax and profit tax have both been raised, along with VAT (up to 22 percent). Accordingly, next year’s new taxes will target savings and consumers.

The main tax increase is on dividends and payouts from securities. That means the budget is extracting money from that same stock market that the government has for years touted as a future source of long-term capital for the economy. Investing in Russian stocks is becoming less profitable right when private investment is most needed.

The impact on savers will be less, but what matters is the principle. A significant proportion of interest on savings is simply compensation for inflation. An interest rate of 14 percent when inflation is at 6.8 percent only yields 7 percent real income. This sends another signal to the central bank: that the budget is stripping savers of the reward for their patience that the central bank has been providing via high interest rates.

Rising taxes on passive income pushes people to save less and spend more, which leads to increased demand and accordingly, inflation. It also means people have less money to spend on government bonds, making the repayment of state debt more dependent on banks and central bank liquidity.

Consumers’ pockets will also be hit. From July 2027, utility tariffs will increase by 11 percent: almost three times the 4 percent inflation target cited by the government when urging the central bank to cut interest rates. Meanwhile, federal spending on housing and communal services is being slashed by one third, from 1.83 trillion rubles in 2027 to 1.23 trillion in 2029.

The remaining deficit will be covered by domestic borrowing at double-digit interest rates. In 2027, the Finance Ministry plans to borrow 7.7 trillion rubles on the domestic market: 2.3 trillion more than previously planned. That will increase the state debt from 19.9 percent of GDP to 21.7 percent of GDP in a single year. Domestic state debt as of September 1 stood at 33.2 trillion rubles, compared with 23.7 trillion rubles at the start of 2025. Servicing the national debt is expected to cost 4.57 trillion rubles in 2027.

There is not enough voluntary demand to cover this level of government borrowing. On September 2, the Finance Ministry issued floating-rate bonds with a nominal value of 1 trillion rubles. They raised 939 billion. According to the central bank, 83.6 percent of the bonds were bought by the country’s biggest banks. The new tax on savings interest will only reduce voluntary demand among the public for ruble-denominated savings.

Taken together, these measures represent a continuation of the move toward fiscal dominance that began in 2024. The needs of the budget are starting to dictate monetary policy, rather than the other way around. The central bank still sets the price of money, but has less and less control over the amount of it.

The Path of Least Resistance

In a survey conducted by RBC news agency among big businesses, 52 percent of respondents said they expected a downturn in the Russian economy. Only 9 percent of companies said unreservedly that they had the resources to take part in a new investment cycle. Another 31 percent said they had “very limited” resources, while 78 percent said there were no excess profits in their industry.

Among the public, the proportion of Russians who believe that the country’s hardest times are still to come grew to 66 percent in July 2026: the highest level since April 2020, when 72 percent of people asked by the VTsIOM pollster held that opinion.

Such feelings are entirely founded. The war continues. The authorities are reluctant to take drastic measures. They cannot openly cut military or social spending. The remaining path of least resistance is inflation and passing on the costs to those who can bear them and who can’t complain: in other words, to the general public via a tax on savings, tariffs, and reducing the value of fixed income. And to businesses via one-off windfall taxes, high borrowing costs, and interest rates that the central bank cannot rapidly cut while tariffs are driving inflation. The condition for all of this to work is that any external shocks must be no worse than moderate.

What else is left in the Kremlin’s arsenal if the Ukrainian attacks against Russian infrastructure continue, oil prices are low, and sanctions bite? The first option is to put pressure on the central bank to loosen its monetary policy: to lower interest rates faster despite inflation, introduce price controls on essential goods, and ease the requirements faced by banks when issuing loans.

The second option is the targeted restructuring of the debt of struggling companies with the support of the central bank, to expand tax breaks, and to offer insurance via a state reinsurer for property destroyed as a result of the war.

The third and final option is to prepare the economy for a long war of attrition.

There are hardly any budgetary measures on this list. Taxes have been raised, the deficit is fixed on paper, and the next line of defense is the central bank’s balance sheet: interest rates, reserves, and willingness to turn a blind eye to bad debt. Meanwhile, introducing price controls and state-guaranteed loans are elements of the fully war-mobilized economy that the authorities have at least said that they want to avoid.

Switching to direct control of prices, production, and capital would mean abandoning the market model that has so far enabled the system to work. The Kremlin is not yet ready to do that openly. Accordingly, the mobilization of resources—if it becomes necessary—will take place not via the budget, but via the central bank. The term of its chairwoman, Elvira Nabiullina, conveniently expires in 2027.