Russia raises taxes on consumers as Kremlin seeks more funding for the war in Ukraine

The Russian government has decided to raise taxes on consumers in an effort to secure more revenue to finance the war in Ukraine. The move comes as Russia’s budget deficit has risen sharply and financial reserves are dwindling.

According to official data from Russian institutions, the federal budget deficit exceeded 60 billion euros in the first half of the year. By the end of July, it had reached 2.8% of GDP — nearly double the planned level.

At the same time, funds in Russia’s financial reserve have fallen to 1.6% of GDP, forcing the Kremlin to borrow from domestic banks.

Economic growth has slowed markedly compared with the levels recorded in 2023–2024, when it had topped 4% annually.

According to Russian government forecasts, the economy is expected to grow by only 0.6% this year. The economy contracted in the first quarter, while a modest recovery is expected in the second quarter.

Analysts link the deepening deficit mainly to the sharp rise in government spending, including funds for the war and financing of state tenders. At the same time, revenues have been hit by international sanctions.

The country’s financial situation has also been affected by long-range Ukrainian strikes on strategic targets in Russia, including refineries and oil depots. The Kremlin has also increased spending to counter these attacks.

For now, low unemployment and high wages in the state sector, particularly in poorer regions, are helping keep consumer discontent in check.

However, experts warn that long-term problems are putting pressure on the Russian economy and could lead to a crisis if they continue to deepen.

The Kremlin-proposed draft states that “the strategic priority of the budget is financial support for defense and national security,” stressing that this requires financial support both for participants in the “special operation” and for their families.