Russia’s Ministry of Finance (MinFin) presented the 2026-2028 budget on September 24 that keeps spending flat and introduces a number of new taxes to fund a ballooning budget deficit and cuts military spending for the first time in three and half years of war.

Not all the details were released, but most of the main parameters have been made public and the draft is scheduled to be submitted to the State Duma by September 30.

The MinFin said its draft federal budget for 2026–2028 will remain “balanced and sustainable,” while prioritising defence, security and social support for families of participants in the war in Ukraine, TASS reported on September 24.

“The draft budget preserves conditions for growth in real wages and household incomes,” the ministry said in a statement, adding that allocations for housing and family support would increase alongside defence expenditure.

The budget will be closely scrutinised after US President Donald Trump claimed he has studied the Russian economic situation and discovered it was very “BAD”, calling it a “paper tiger”, as part of an abrupt U-turn on Ukraine during the United Nations General Assembly (UNGA) in New York this week.

The main change in the new budget is sharp changes in the GDP growth outlook: 2.5% in 2025 instead of 1%; and 1.3% instead of 2.4% in 2026. This brings the Ministry of Economy's estimates closer to the Bank of Russia's current forecast for growth of 1-2% in 2025 and 0.5-1.5% in 2026.

After three and half years of war, the Russian government is under growing pressure to fund its “Special military operation” (SVO) and its economic problems are getting worse. However, as bne IntelliNews reported in a recent deep dive into Ukraine and Russia’s budgets side-by-side, the Kremlin can fund its entire war effort using only internal resources – largely the issue of the Russian Finance Ministry’s OFZ treasury bills tapping the RUB20 trillion of liquidity in the banking sector.

Ukraine is, however, entirely dependent on external funding from its allies: it is short some $8bn-$19bn (depending on if there is a ceasefire) for 2025 and the unfunded gap in next year’s budget was just increased to $65bn by the International Monetary Fund (IMF), all of which will have to come from European partners this year, after the US sent no money to Ukraine since US President Donald Trump took office.

Russia’s MinFin is trying to spread the load with a mix of modest drawdowns from its rainy day National Welfare Fund (NWF), cutting spending, issuing more OFZ bonds and this year increasing VAT rates by 200bp that comes into effect on January 1, and the introduction of progressive income taxes for the first time in Putin’s 25 years of rule that came into effect this year.

Taken together, while this will be a painful year for Russia’s budget, the Kremlin is still well able to fund a continuation of the war for at least two more years based on its domestic funding resources, and probably much longer.

Revenues: Prime Minister Mikhail Mishustin announced two key figures at the government meeting. According to him, federal budget revenues in 2026 will amount to RUB40.283 trillion, while expenditures will amount to RUB44.869 trillion. (chart)

This means that, adjusted for inflation, expenditures will remain virtually unchanged compared to 2025 (RUB41.469 trillion) and will be only 2% higher than last year's 2026 plans, The Bell reports, which is unsurprising, as inflation was also higher than planned.

“Revenues will decline not only in real but also in nominal terms—both compared to this year's planned figures and to the government's 2026 plans adopted a year ago. The decline in revenues is due to deteriorating macroeconomic indicators,” The Bell said in a comment.

Russia’s economy has been slowing sharply thanks to the CBR’s unorthodox plan to artificially cool the economy to bring down inflation. The outlook for this year is for about 1% growth after two years of 4.3%, according to the CBR’s Main Directions of the Single State Monetary Policy mid-term outlook report released on September 3. However, growth will start to pick up again in 2026, according to the regulator’s basic scenario.

First military spending cuts: For the first time since the war started in 2022, Russia's defence spending in 2026 will be reduced, according to data cited by Reuters, from RUB13.5 trillion to RUB12.6 trillion ($153.7bn, 5.8% of GDP). Moreover, it will be slightly lower than the 2026 plans set when the previous budget was approved a year ago (RUB12.8 trillion).

“Given that inflation has exceeded the plans, the actual reduction in defence spending will be even greater,” says The Bell. “However, expenditures under the adjacent budget line item "National Security and Law Enforcement" will increase from RUB3.56 trillion in 2025 to RUB4.065 trillion in 2026.”

Taken together there is still a slight decline: total defence and security spending will fall in nominal terms by 2.32% and more significantly in real terms by 6.68% from RUB17 trillion to RUB16.7 trillion ($203.3bn, 7.2% of GDP) due to inflation outpacing the security increase.

The rationale for the cut in defence, or at least the halt in its steady increases, is not clear. Some argue that now the Russian economy is fully militarised the need for continued heavy investment is falling away. Others say that steady progress on the battlefield has also taken the pressure off the need for more heavy spending. And at the same time, MinFin itself has been pushing for less military spending, simply to reduce the distortions to an overheating economy that will cause long-term damage that could undermine the campaign.

Deficit: the budget deficit has ballooned sharply on the back of unfettered military spending and falling revenues. The forecast has already been tripled from 0.5% set at the start of the year to 1.7%, or RUB3.8 trillion ($46.2bn), in the summer. (chart)

However, over the first eight months of this year it had already swelled to 1.9% of GDP, or RUB4.2 trillion ($51.1bn) blowing through the new official target.

Finance Minister Anton Siluanov announced he intends to keep the deficit to 1.6% of GDP in 2026 (RUB3.7 trillion, $45bn), but Prime Minister Mikhail Mishustin suggested that the planned deficit will be closer to 2%-2.2% of GDP (RUB4.6 trillion, $47.9bn). Some economists are predicting that the deficit will go as high as 2.6% of GDP if the economic slowdown persists or gets worse.

The growing deficit has provoked MinFin into raising new taxes to cover the short fall, in addition to making use of its other resources, such as increasing the issue of the Russian Finance Ministry’s OFZ treasury bills and increasing the draw down money from the National Welfare Fund (NWF).

As of September 25, 2025, Russia's federal budget is under pressure from lower oil prices after OPEC decided to increase production this year. The Urals blend crude price (used in the budget) has averaged $55-60/bbl amid global trade tensions, elevated military spending running at a record 40% of total outlays, and a stronger ruble reducing export revenues.

After eight months the key budget results so far this year were:

-Revenues RUB23.7 trillion RUB (+3% y/y, driven by non-oil taxes like VAT/corporate up 14%);

-expenditures RUB27.9 trillion RUB (+18% y/y, with defence/security 36% share);

-oil/gas revenues down 20% y/y to RUB6 trillion.

-August showed a minor budget surplus of RUB430bn, offsetting July's 686bn deficit, but the cumulative deficit for the half-year is well ahead of the last two years. (1H25: RUB3.69 trillion or 1.7%).

After eight months the key outlook for the 2025 budget have been revised to new lower forecasts:

-Oil/gas revenues cut to RUB8.32 trillion (down 24% from prior forecast);

-total revenues at RUB38.51 trillion (down from RUB40.3 trillion);

-expenditures at RUB42.3 trillion (up due to defence).

-MinFin plans to cover the deficit via RUB447bn drawdown from the RUB3.9 trillion ($48.9bn) left in the liquid part of the National Wealth Fund and domestic borrowing of RUB4.8 trillion OFZ bonds – about twice the prewar rate of borrowing. The VAT hike to 22% will add another RUB1 trillion to close gaps.

“The Ministry last updated its forecast in April, and that version proved overly optimistic. Low oil prices, a strong ruble, and a slowing economy continued to reduce budget revenues. The new forecast published today is significantly more conservative than the April one: the Ministry has recorded a sharper economic slowdown than previously expected,” The Bell said.

Deficit Funding (Ukraine vs Russia, USD terms)
Metric	Ukraine 2025 (trn UAH / $bn)	Ukraine 2026 (Draft, trn UAH / $bn)	Russia 2025 (trn RUB / $bn)	Russia 2026 (Draft, trn RUB / $bn)
Deficit (% GDP)	1.97 / 48 (22%)	1.974 / 48 (18.4%)	3.2 / 39 (1.4%)	2.181 / 26 (0.9%)
External Financing	2.1 / 51 (grants/loans)	2.079 / 51	Minimal / 0	— / 0
Domestic Borrowing (Bonds)	0.76 / 19 (OVDP)	0.42 / 10	4.8 / 58 (OFZ)	5.1 / 61
Other (Reserves/Aid)	0.1 / 2 (grants)	0.3 / 7	0.45 / 5 (NWF)	4 / 48 (NWF)
Source: MinFins, bne IntelliNews estimates

Housing: More than RUB2 trillion ($23.8bn) is earmarked for housing programmes for families with children. This includes RUB230bn ($2.7bn) in 2025 to fund preferential mortgage schemes, over RUB160bn ($1.9bn) to remove dilapidated housing, and RUB182.3bn ($2.2bn) to modernise public utilities.

Family: The so-called “Children’s Budget” is projected to exceed RUB10 trillion ($119bn) between 2026 and 2028. From 2026, families with two or more children will receive annual payments, while maternity capital will be extended until 2030 and adjusted for inflation.

National Projects: National projects will account for RUB41 trillion ($489bn) in funding over six years, including RUB4.6 trillion ($54bn) for road infrastructure and RUB1.9 trillion ($22.7bn) to support technological leadership. Additional subsidies will be directed to regions to equalise budgetary resources, while wage subsidies in 2026 will be pegged to inflation.

New taxes: To fund the increased expenditure, the government plans significant tax changes. The standard value-added tax (VAT) rate will rise from 20% to 22% from January 2026, which will add an estimated RUB1.2 trillion of revenues, or 0.5% of GDP.

The preferential 10% VAT rate for socially significant goods will remain. The threshold for small businesses under the simplified tax system to become liable for VAT will be reduced from RUB60mn ($716,369) to RUB10mn ($119,394).

Bookmakers will face new fiscal measures, with a 5% levy on accepted bets and a 25% profit tax. “The increase in VAT and the increased burden on the gambling industry are needed to finance defence,” the Finance Ministry said.

However, as VAT is a consumption tax, it will push up inflation again as 90% of the increase will be passed on to consumers by manufacturers and service providers, according to The Bell.

Privatisation: Privatisation of large state-owned enterprises is also planned, though the government said it would retain controlling stakes in strategically important companies. One option to raise additional cash has been to sell off some of the assets held in the illiquid part of the NWF, which includes, for example, a significant stake in state-owned retail banking giant Sberbank. Most of the investments in the non-liquid part of the NWF are managed by the sovereign wealth fund, Russia Direct Investment Fund (RDIF).

The ministry emphasised that despite growing fiscal pressures, the draft budget was designed to “preserve stability while meeting the needs of the armed forces and providing social guarantees to the population” – a comment partly aimed at Trump’s comments the previous day.

Inflation and rates: Inflation has been falling faster than expected, dropping from a sticky 10% at the end of 2024, to 8.8% in August and is slated to be 6.8% by the end of the year. However, economists worry that the 200bp increase in VAT will stoke prices again over the rest of this year and slow the monetary policy easing the CBR began in the summer. The regulator has already cut rates by 400bp this year to 17% and was hoping to cut another 200bp before the end of this year, before bringing rates to 12-13% next year to revitalise growth.

Fixed investment: The investment forecast has also been reduced: instead of the previously expected 3% growth in 2026, now a decline of 0.5% is projected. The Ministry of Economy attributes this to the "high base of recent years" and tight monetary policy.

Industrial production: The industrial production forecast has been lowered from 2.6% to 1.5% in 2025 and from 2.9% to 2.3% in 2026.

Trade balance & FX: a foreign trade surplus in goods in 2025 is expected to reach $106.9bn (versus $86.8bn in the April forecast), and the ruble exchange rate will strengthen to RUB86.1 per dollar, up from RUB94.3 per dollar on average. However, in 2026, the exchange rate will fall to RUB92.2 per dollar. The Brent oil forecast was set at $70 per barrel in 2025–2027, down from the previously forecast of $72 in 2026–2027).