Russia's Deficit Hits $72 Billion, and the Kremlin Wants Cash

Russia's budget deficit reached 5.8 trillion rubles ($72 billion) through August — nearly 50% higher than a year earlier and above the government's own revised target of 4.8 trillion rubles, according to the Kyiv School of Economics. The figure landed just as parliament's lower house approved, on the first of three votes Thursday, a 2027-2029 budget built on a string of tax hikes aimed at mining companies and better-off savers.

President Vladimir Putin's government announced the increases after September's parliamentary elections. Last year the Kremlin raised value-added taxes broadly and pulled more small businesses into the VAT net. This time the squeeze is narrower: iron ore, nickel and gold producers, plus citizens with investment income, property sales and sizeable bank deposits.

What are the new taxes?

The government's proposals, dated to take effect January 1, include:

• A 20%-30% windfall profits tax on mining companies that have gained from higher prices since last year.
• Higher income-tax rates of 13% to 22% on interest, dividends and property-sale proceeds — income currently taxed at 13% up to 2.4 million rubles ($29,800) and 15% above that.
• A 100-ruble charge per parcel plus 22% VAT on foreign goods worth under 200 euros bought online, previously duty-free.
• A 35% tax on dividends paid into restricted accounts for foreign investors from "unfriendly countries."

That is a direct hit on Russia's savers. For a household earning 3 million rubles in interest and dividend income, the top rate rising from 15% to 22% means roughly 210,000 rubles more tax per year. The Finance Ministry has not said how much revenue the package will raise — a notable omission given the deficit it is meant to close.

Who pays for the war?

Moscow residents interviewed on the street split between complaint and resignation. "They need money for state coffers, they need to collect more from people, from ordinary people," said Denis Bystrov, 39.

"What can you do?" said Nelly Godunova, 92. "I've got four university degrees, they were all free, you know? True, I've given plenty to this country. But no matter… If you earned something, you've got to give back."

Sergei Sukachev, who gave his age as "almost 70," was more blunt about the destination: "Everyone knows perfectly well that the money's going for the military operation, right?" He added: "I've suffered a little as a businessman, to be honest, but I clearly understand, it's best to hang on and to get our way."

Chris Weafer, CEO of consultancy Macro-Advisory Ltd., argues Russia is not facing a financial crisis but a slower erosion. Russia has enough financing to cover the deficit in 2027 and probably 2028, he said — "But that is at the expense of raising taxes, of increasing costs for households as well as business."

"And it means that there is much less money available for normal economic development or infrastructure. Basically, the budget is now moving to a phase where it is primarily funding the military and the military operation," Weafer said. "So the economy is now becoming very skewed. While there's still modest positive growth, it is coming from the state spending into these … state-linked industries, whereas the rest of the economy is struggling badly or even failing."

What happened to Metro's Russian business?

Foreign companies are also being converted into revenue. A subsidiary of German retailer Metro was seized under a law permitting temporary administration of firms from "unfriendly countries" and tapped for a 1-billion-ruble ($12 million) contribution to the war effort.

Metro AG headquarters said it had no role in the donation, which "does not reflect our position or the way we run our business." Metro Russia, no longer controlled from Germany, said the money for the "National Front – Everything for Victory" fund would buy vehicles, communications devices and anti-drone equipment for soldiers.

Weafer said the seizures may be leverage ahead of a deal over Russian assets frozen abroad. The risk cuts the other way too: the Finance Ministry may come to see foreign companies as a recurring source of windfall revenue.

How much room does Russia have left?

The headline numbers look tolerable. The government forecasts 0.6% GDP growth this year, unemployment sits at a record low, and public debt is minimal. Finance Minister Anton Siluanov puts the revised deficit near 3% of GDP — above last year's 1.6%, but below the US's 5.8% and roughly equal to the EU average of 3.1%.

But that picture omits the funding straitjacket. Sanctions lock Russia out of international bond markets. Domestic borrowing hit stress this summer when banks refused low-rate bond purchases; sales resumed only after the government offered better terms. The Kyiv School of Economics says banks are also funding the war through loans to defense companies, shifting true war costs onto bank and state-company balance sheets and off the federal budget.

The National Wealth Fund, built from oil and gas earnings, has dwindled to liquid assets of 1.7% of GDP in spendable form such as Chinese currency and gold. KSE projects Russia will exhaust its financial buffers by early 2028 without further tax increases or social spending cuts. In an extreme case, the government could force banks to lend outright — a step that could destabilize the banks and the wider financial system.

"The room for maneuver is limited: an adverse shock such as a drop in global energy prices or an erosion of confidence in the financial system could quickly destabilize the fragile equilibrium," a KSE report said. The takeaway in plain words: Russia can pay for the war through 2027, but only by taxing its own people harder and letting the civilian economy shrink.