Vladimir Putin and the creamy decision-makers are starting to feel the weight of the war in Ukraine. To deal with the expanding budget deficit, Moscow intends to rise taxes and reduce public spending.
Although Putin had previously promised that taxes would not emergence by 2030, the government announced on Tuesday, September 25, a VAT increase from 20 to 22 percent. Falling proceeds from oil exports exert force on state finances and are expected to cut non-defensive expenditure, including in the social benefit sector.
Russia's budget deficit increased to around 4.2 trillion rubles (EUR 42.7 billion), accounting for about 1.9 percent of GDP – nearly 4 times the first mark for 2025, 0.5 percent. The Ministry of Finance is forecasting the deficit to emergence to 5.7 trillion rubles by the end of the year.
According to Elina Rybakova, a Russian economy expert at the Kyiv School of Economics, Russia, as it had previously been, will defend a advanced level of military spending at the expense of cuts in another areas. – The results are the same as in 2014 – explains Rybakow in a conversation with DW. – Cuts affect everyone, while expanding defence spending. Education, healthcare, social programs and environmental protection are the most affected, says the expert.
Chris Weafer of Moscow's advisory company Macro-Advisory explains in an interview with DW that budget cuts had been anticipated since December last year erstwhile Putin suggested them. “You are consciously reducing spending in areas that are not absolutely necessary, both in the military and in the social sector,” he says.
Ukrainian drone attacks bring results
Russia's economy has long been in grave danger. This was besides noted by American president Donald Trump, who on September 24 wrote on his community portal fact Social: "Putin and Russia have serious economical problems and it is time for Ukraine to take action".
Trump besides mentioned the ongoing energy crisis in Russia. Successful attacks by Ukrainian drones on Russian energy infrastructure, including refineries and export terminals, led to fuel shortages, price increases and long queues.
The main origin in Russia's overall economical difficulties is the decline in oil and gas export revenues. In 2022, the emergence in oil prices and the acquisition of fresh customers in China and India allowed income to increase. In 2023, despite western sanctions and the simplification of the EU's dependence on Russian energy, export revenues remained high.
However, falling oil prices, strong ruble, attacks on refineries and the effects of sanctions hit the Kremlin's most crucial origin of income. State spending on gas and oil in September is expected to be 23 percent lower than a year ago, which makes economical forecasts worse.
In July, GDP growth was only 0.4% per year, indicating a slowdown in the economy. authoritative forecasts for 2025 talk of an increase of 1%, well below erstwhile expectations of 2.5%. advanced inflation last year pointed to overheating of the economy, driven by massive increases in defence spending.
As of 2021, defence spending has increased more than 4 times – in June 2025, it reached about 16 trillion rubles, which further burdens the state's finances. The Kremlin claims that the economy is undergoing a "controlled slowdown", explains Chris Weafer. The central bank raised interest rates to halt inflation and reduce rising consumer prices. This strategy has mostly worked and helped stabilise the economical situation.
Budget cuts are coming
According to the Moscow Financial Analyst, current budgetary expenditure remains at a level that cannot be maintained in the long term. If they are not importantly reduced in subsequent years, including in the defence sector, this threatens to undermine the Kremlin's communicative of Russia's stability, good economical condition and the minimal impact of war on citizens' lives.
– specified actions would destruct the economy," emphasises Chris Weafer, who believes that expanding economical force could prompt Putin and the Kremlin to consider a peace agreement. In his opinion, the budgetary burden and the request to keep stableness are crucial factors that increase the likelihood that the conflict will be concluded sooner or later.
Elina Rybakova does not share this optimism. – At the time of the invasion in 2022 they were aware of economical costs. They included them in their calculations and made a political decision that they were acceptable – the expert believes.
Secondary sanctions against Russian oil recipients
The pressures on the EU and the US are expanding in the face of economical difficulties in Russia in order to importantly tighten existing sanctions and aid accomplish a peace agreement.
Trump late called on Europeans to completely halt the acquisition of Russian gas, mainly liquefied LNG. But Russian oil is inactive coming to Europe, although only in the form of refinery products.
The US is besides considering introducing secondary sanctions against countries specified as India and China that buy large quantities of Russian oil. This could greatly exacerbate Moscow's economical problems.
Rybakova, on the another hand, stresses that force on Russia should be increased through further sanctions, due to the fact that the economy is now as delicate as it has not been in a long time. At the same time, it recalls that countries specified as Venezuela, North Korea and Iran have survived despite extended sanctions. This means that sanctions alone are not adequate to save Ukraine. According to the expert, sanctions may be part of the solution, but not the solution itself.
However, according to Chris Weafer, secondary sanctions could rapidly lead Russia to the negotiating table. The introduction by the US of specified restrictions on Russian oil merchants would be a key step. “If gross fell by an additional 20-30 percent, a unchangeable budget could no longer be passed, and the political situation in the country would have changed dramatically,” says the analyst.
