explainers

Russia’s 2025 federal budget outlines record military and ‘top secret’ spending — and tax hikes for ordinary citizens

Source: Meduza

The Russian government has submitted its draft federal budget for 2025–2027 to the State Duma, a roughly 7,000-page document outlining projected revenues and planned expenditures. The figures exceeded earlier predictions, with 41.5 trillion rubles ($435.7 billion) allocated for next year alone — and that may not be the final amount. Moreover, a record share of the budget is classified as “secret” or “top secret.” According to The Bell’s estimates, nearly a third of the expenditures are hidden from public view. Meduza analyzed the draft budget to uncover how much Russia plans to spend on the war against Ukraine and the “reconstruction” of occupied territories, how much tax reform will bring into the Kremlin’s coffers, and how much it costs to maintain the Putin administration and its propaganda machine.

The cost of war

According to the Russian government’s budget for 2024–2026, the authorities expected to spend 36.6 trillion rubles (about $385 billion) in 2024, with nominal expenditures projected to drop to 34.3 trillion rubles (almost $361 billion) in 2025. However, things turned out a bit differently. The Finance Ministry has already exceeded this year’s target, estimating expenses at 39.4 trillion rubles ($414 billion), and expects them to increase by another five percent next year. The reason for this is clear: Russia’s war against Ukraine hasn’t ended.

The Finance Ministry had already allocated record funds for “National Defense” last year, but it planned to cut spending after 2024 — by 2.2 trillion rubles ($23.1 billion) in 2025, and another 1.1 trillion rubles ($11.6 billion) in 2026. Now, however, the new draft budget shows a record-breaking 13.5 trillion rubles (almost $142 billion) for defense, making it the largest expenditure category. This marks a 25 percent increase from the previous year and even exceeds Bloomberg’s forecast, which was made a week before the budget was published.

Over the next three years, spending on the related category “National Security and Law Enforcement,” which includes the armed forces and salaries for prosecutors and investigators, is also set to rise. In 2025, 3.5 trillion rubles ($36.7 billion) will be allocated for these purposes. Together with “National Defense,” security-related expenditures will make up 41 percent of the entire federal budget.

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The objectives for these funds are formulated in a typically vague way, such as “ensuring obligations under military-technical cooperation agreements,” “replenishing military equipment,” and “fulfilling the functions of the Interior Ministry.” However, the planned expenses for the “restoration and socio-economic development” of Russian-occupied Ukrainian territories look more concrete. Over four years, these costs are projected to exceed 1.29 trillion rubles ($13.5 billion).

It’s also worth noting that the authorities seem to be downplaying the budget’s strong military focus: key officials haven’t mentioned it, and Russian business publications aren’t covering it extensively.

Finance Minister Anton Siluanov named social policy as the top priority in the budget, though in terms of spending, it ranks second. While 7.7 trillion rubles ($80.8 billion) were allocated for 2024, social spending will drop to 6.5 trillion rubles ($68.2 billion) next year, with promises to raise it back to 7.2 trillion rubles ($75.5 billion) later.

This category also includes some military-related expenses: for example, the three year draft budget allocates 30 billion rubles (almost $315 million) annually for army sign-on bonuses, and another 5.8 billion rubles ($60.8 million) will go towards compensating the families of fallen servicemen.

Social policy also covers pensions and benefits, maternity capital benefits (to be indexed by 7.3 percent), monthly payments to state award recipients, lifetime pensions for judges, and many other items. Key measures include the indexation of pensions for working Russians (which hasn't happened since 2015) and the allocation of 1.7 trillion rubles ($17.8 billion) to improve housing conditions, including ongoing preferential mortgage programs.

Next year, 4.3 trillion rubles ($45 billion) will be allocated to the economy — more than the combined spending on education and healthcare. The smallest allocations will go to culture, at 233 billion rubles ($2.4 billion) and sports, at 67 billion rubles (about $703 million). For comparison, servicing the national debt will cost 47 times more.

Raising revenues

Revenues are expected to increase by 12 percent, with total revenue for 2025 projected at 40.3 trillion rubles (almost $425 billion). However, this rise isn’t due entirely (or even primarily) to oil and gas revenues. In fact, contributions from oil and gas will shrink slightly, accounting for 27 percent of total income, down from more than 30 percent previously, leading Finance Minister Anton Siluanov to say that Russia is reducing its dependence on oil and gas. That said, the budget’s accompanying report notes that revenue in this area is falling due to lower oil prices.

Meanwhile, non-oil and gas revenues are set to rise significantly. The government clearly states that it expects an increase in turnover taxes, particularly VAT, “in light of macroeconomic trends.” This likely refers to Russia’s economic overheating reaching a 16-year peak: production is running at full capacity and consumer demand is high, meaning Russians’ steady spending will help sustain the budget.

This revenue category also includes duties and excise taxes, which will increase next year on gasoline, alcohol, cigarettes, and sugary drinks. The government cited the need to replenish the “road fund” as the reason for the gasoline tax hike, while the other increases are tied to public health measures. Overall, turnover tax revenue is expected to grow from 15.6 trillion to 18.2 trillion rubles ($164 billion to almost $192 billion) next year.

Additionally, income tax revenue is expected to rise from 2.3 trillion to 4.8 trillion rubles ($24.2 billion to $50.6 billion). This is due to tax reforms passed earlier this year, which will raise the corporate profit tax rate from 20 to 25 percent and modify the progressive personal income tax scale, with the highest rate set at 22 percent.

The government’s revenue from the vehicle disposal fee is also set to double. Starting October 1, 2024, recycling fees for foreign passenger cars will rise by 70 to 85 percent (depending on engine size) in an effort to support the domestic auto industry. For Russians, this could mean a 10 percent increase in car prices by the end of the year. For the Finance Ministry, this measure is expected to generate an additional two trillion rubles ($21 billion) in 2025.

The budget also mentions “measures to improve tax administration and collection,” but provides no further details.

As has been the case since the start of Russia’s full-scale war against Ukraine, however, expenses are still expected to exceed revenues. The budget has been drafted with a deficit for the next three years. For 2025, the shortfall is a relatively small 1.2 trillion rubles ($12.6 billion), or 0.5 percent of GDP. By comparison, this year’s deficit is 1.1 percent.

Finance Minister Anton Siluanov explained this conservative approach as a return to the budget rule that spending should match revenues, excluding debt servicing (though this hasn’t been achieved yet). Nevertheless, the bill includes significant borrowing, with the government planning to raise 4.8 trillion rubles ($50.4 billion) in 2025. This amount exceeds the deficit because much of it will be used to refinance existing debt.

Economists are skeptical about how realistic this scenario is. With the Central Bank's high interest rates, borrowing will be extremely costly, and the Finance Ministry is already scaling back its debt program and has stopped holding auctions for government bonds. On top of that, banks may face higher taxes on bond income, which could further weaken demand. External debt markets remain inaccessible due to sanctions.

One key change involves the role of the National Wealth Fund, which has been the primary tool for balancing the budget. Since the start of the full-scale war, roughly 4.7 trillion rubles ($49.3 billion) have been spent from the fund. At this rate, economists expected that Russia’s main “rainy day” reserve would be depleted by next year.

However, the Finance Ministry promises to save excess oil revenues if prices rise above $60 per barrel. According to the budget plan, the National Wealth Fund will grow by 1.8 trillion rubles ($18.9 billion) next year. Siluanov stated that these reserves will only be used if oil prices drop or to finance infrastructure projects. However, the explanatory note lists the National Wealth Fund as a co-financing source for pension savings.

Dividends from state-owned companies also remain a significant source of revenue for the Finance Ministry. This year, they exceeded expectations by 100 billion rubles ($1 billion), bringing in 755 billion rubles ($7.9 billion) for the state. Next year, that figure is expected to be even higher.

Another resource the government plans to use to cover the deficit is privatization, which is expected to generate a modest 2.3 billion rubles ($24.1 million) annually. The sale of precious metals and gemstones is also listed as a revenue source: the Finance Ministry plans to sell small-sized diamonds worth one billion rubles ($10.5 million). However, the next paragraph notes that 51 billion rubles ($535.5 million) will be allocated to replenishing reserves.

What does this mean for the economy?

The Finance Ministry claims the budget plan is meant to “contain inflationary pressures and strengthen the economy's resilience.” But this seems far from certain. The Central Bank has repeatedly warned of the risk of rising prices due to overly loose fiscal policy. High government spending injects more money into the economy, boosting consumer spending. Meanwhile, production isn’t increasing — it’s already at full capacity — so inflation continues to grow.

The government’s preferential programs add another layer of complexity. According to Russian Central Bank Head Elvira Nabiullina, the Central Bank raises the key interest rate to cool demand, but the government counters this by expanding subsidies. This undercuts the bank’s efforts, forcing it to raise rates even further, creating a vicious cycle.

This year, the Central Bank aimed to reduce inflation to four percent, but it peaked at nine percent. The forecast has since been revised twice, and the four-percent target has now been pushed to next year, though economists remain skeptical that it will be reached by then.

The new budget has only heightened concerns: in addition to a significant increase in the vehicle disposal fee, next year will also bring higher utility tariffs. Initially, a 5.7 percent increase was planned, but the final document shows an 11.9 percent hike — on top of this year’s 10 percent rise. Electricity prices are set to increase by 12.6 percent, and gas by 10.3 percent. In the past, such moves have sharply worsened inflation expectations, pushing the Central Bank to raise the key rate even further — and it’s already at 19 percent. This ongoing clash between Nabiullina and the Finance Ministry has even become a meme.

Meanwhile, the Economic Development Ministry predicts that oil prices will decline over the next three years, weakening the price of Russia’s currency to to 100 per U.S. dollar by 2026, and that GDP growth will hover around three percent.

As noted by the Telegram channel Faridaily, the presidential administration’s expenses will increase by 25 percent next year, reaching 30.9 billion rubles ($324.4 million), with 20 billion rubles ($210 million) going to salaries, including the president’s. The government has also increased subsidies for state media, with one TV company, which has just seven employees, set to receive 1.5 billion rubles ($15.7 million) annually for “content development.”

The word “patriotism” appears 35 times in the federal budget’s explanatory note, with funding allocated for 16 initiatives related to the “civil and patriotic education of youth.” Some line items are specific, such as prizes for the “Best Cossack Cadet Corps” competition, but others don’t even name an executor. For instance, 310 million rubles ($3.3 million) is set aside annually for unspecified “patriotic education events for children and youth.” According to Meduza’s calculations, total spending on patriotism over three years will amount to 50.5 billion rubles ($530 million) — twice the amount allocated for training and research in artificial intelligence.