Russia’s President Vladimir Putin convened an economic cabinet meeting for the second time in a month amid growing concerns over the country's faltering economic momentum, as reported by RBC business portal and The Bell.

Russia’s GDP grew by just 0.4% year-on-year in July and 1.1% year to date in 7M25, four times lower than the growth rate over the same period in 2024. Addressing senior government officials, Putin asked: “Is that enough? Is this what we were aiming for? Are we solving the task we set for ourselves, or do we need different measures and faster growth?”.

The government which is currently drafting the budget for 2016 and 2016-2018 three year cycle will find itself stuck between a rock and hard place. While Putin will continue demanding faster growth, the Central Bank of Russia (CBR) refuses to cut the key interest rate fast unless the budget deficit is cut. 

Putin reiterated that high interest rates maintained by the CBR to control inflation are weighing on economic activity.

He suggested tackling the widening budget deficit not through spending cuts but by clamping down on tax evasion and the shadow economy. “The aim is to reduce prices not only in stores but also across economic activity,” he added, noting that monetary tightening has yet to deliver a broad-based reduction in inflation. 

In a separate report, The Bell claims that the government is considering another tax increase, with one of the main options being a second VAT raise since 2019. 

As followed by bne IntelliNews, a higher 1.7% of GDP deficit has already been approved for 2025, but the broader fiscal strategy remains unclear. In 8M25 the budget deficit already reached 1.9% of GDP.

Three officials familiar with the budget discussions confirmed to The Bell that a VAT increase is being discussed, with exceptions possibly made for socially significant goods. According to these unnamed sources the VAT could be increased from 20% to 22%, potentially generating about RUB1 trillion in extra budget revenues.

VAT is a key tax for the federal budget. Together with the mineral extraction tax (MET) in 2024 it provided 70% of budget revenues. The Bell also reminds that VAT is the simplest tax to collect as it is automatically added to each purchase transaction. 

However, the second VAT hike since 2019 could backfire as it is likely to feed back into inflation with the businesses passing the increase back to consumers and raising prices.

Sources told The Bell that other options are also being discussed, such as increasing profit tax and personal income tax. Both have already been increased in 2025 (corporate tax was raised from 20% to 25%, the top progressive personal income tax rate raised to 22%).

Borrowing more, as already planned by the Finance Ministry, is unlikely to bring much relief with high servicing costs if the CBR maintains double-digit interest rates. The Bell estimates that by the end of the year debt‑service payments will total 2% of GDP.