Moscow is allocating more than 16 trillion rubles to the military in each year of its new three-year budget cycle, paying for it with heating systems, hospitals, and consumers’ wallets. An economy growing at 0.6% is being asked to carry a burden designed for 3% growth.
On October 1, 2026, the Russian government submitted a document to the State Duma that speaks more candidly about the Kremlin’s plans than any diplomatic rhetoric ever could. The draft federal budget for 2027–2029 allocates 17.1 trillion rubles to “National Defense.” Just a year ago, the same Finance Ministry projected roughly 13.6 trillion rubles for 2027. The 3.6 trillion-ruble difference is the price of a single year during which, judging by the numbers, the Russian authorities stopped planning for the war to end.
The budget allocates 16.6 trillion rubles for 2028 and 16.3 trillion for 2029. A decline of 800 billion rubles over two years, with inflation above 6%, looks more like a symbolic pause than a reversal. Altogether, approximately 50 trillion rubles will go to the military over the three-year period. For perspective, the entire 2022 federal budget, drafted in the fall of 2021, envisioned expenditures of less than 24 trillion rubles.
War has become a permanent fixture of the budget.
Finance Minister Anton Siluanov, presenting the draft, described the priorities this way: “The key priorities of the draft budget for the coming three-year period are fulfilling the state’s social obligations, financing the country’s defense and security needs, and supporting participants in the special military operation and their families.” Social obligations come first in that sentence. In the spending tables, they are the ones being cut.
One Ruble in Three Goes to the Front
Military spending will account for 35% of all federal budget expenditures. In the 2022 budget, drafted before the invasion of Ukraine, defense consumed 15%. Its share has more than doubled, even as the budget itself has doubled over those same five years, from less than 24 trillion rubles to 48.7 trillion in 2027.
Alongside the military, the “National Security and Law Enforcement” category is also expanding. In 2027, it will grow by 10% to 4.3 trillion rubles and continue rising in subsequent years. This category includes the National Guard, whose units are deployed on the Ukrainian front while also being responsible for suppressing street protests inside Russia. The line separating the military from the police in Russia’s budget classifications is becoming as blurred as it is in real life. Together, the two categories consume 44% of all spending.
Nearly half of the government’s wallet is working for the war and the security apparatus.
Who benefits from this structure is obvious. Defense corporations, loaded with orders years in advance, receive guaranteed demand that depends neither on oil prices nor consumer sentiment, while their executives are becoming the most influential economic group within the Russian elite, displacing bankers and commodity magnates. Contract soldiers and their families in depressed regions also benefit, as signing bonuses often exceed an entire year’s local earnings. The civilian sector loses, saddled with expensive credit, labor shortages, and tax increases. Savers have not been forgotten either: the government will now take up to 22% of their interest income. The war economy is redistributing resources away from Moscow and St. Petersburg toward defense-industry towns and impoverished ethnic republics, and therein lies its political durability: the war has created a broad constituency with a material interest in its continuation.
The figure of 17.1 trillion rubles is often presented as an increase of roughly one-third over the current budget law, which allocated about 12.9 trillion rubles to defense. Mathematically, that is correct. Substantively, the picture is different. Actual military spending in 2026, according to independent economists, turned out to be significantly higher than approved, and the new draft largely legalizes a spending level that has already emerged rather than establishing a new one. I would not read 17.1 trillion rubles as a ceiling. The experience of 2025–2026 suggests that it is more likely a floor.
Eighty-Seven Percent Classified: What Lawmakers Are Voting For Without Knowing What They Are Voting For
Approximately 87% of future defense spending is classified. That estimate comes from investigative journalists who analyzed the bill’s appendices line by line, and I see no reason to distrust it: their method for calculating open and classified budget lines is transparent and reproducible. State Duma lawmakers will vote to approve 17 trillion rubles whose actual distribution is known, at best, only to a narrow circle of members of the relevant committee.
Public oversight of the single largest spending category simply does not exist.
Secrecy is usually justified by military necessity. The economic explanation is more mundane. Classified budget lines make it possible to move money quietly among recipients and conceal from the public how much each month of combat operations actually costs. There is a price for this that appears in no budget table. Money whose expenditure no one scrutinizes is spent less efficiently than money everyone can see. Any bureaucracy deprived of external oversight eventually begins working to perpetuate itself, and military bureaucracy is no exception.
Twice as Much for the Internet Regulator, Less for “Putin’s Pioneers”
The most revealing line in the new budget accounts for a negligible share of its total. The subsidy to the Main Radio Frequency Center, an agency subordinate to Russia’s communications regulator, for its system restricting access to internet resources will rise from 9 billion to 19 billion rubles. That is a 2.1-fold increase.
In 2026, Russia experienced mass mobile internet shutdowns, the introduction of “white lists” of websites that remain accessible during outages, and new blocking technologies. Doubling the funding means one simple thing: the experiment has been deemed successful and is becoming standard operating procedure. The state is writing into its own budget the power to disconnect the country from the global network whenever it sees fit.
The propaganda apparatus will continue receiving subsidies at almost unchanged levels. RT will receive more than 30 billion rubles, while the state broadcasting corporation will receive about 25 billion. The My History Foundation, associated with Metropolitan Tikhon Shevkunov, will receive 2.8 billion rubles in grants. The organization has built more than two dozen “Russia — My History” historical parks, where the country’s history is presented as a centuries-long defense against a hostile West.
Something else is even more interesting. Subsidies for the Young Army Cadets National Movement are being cut by 7%, while state support for the Movement of the First, popularly nicknamed “Putin’s Pioneers,” is being reduced by 21%. A regime constructing its ideology around the militarization of youth is economizing on its own youth programs. The contradiction is only apparent; the logic is accounting-driven. Censorship produces immediate results and protects the government today. Raising a loyal generation pays dividends fifteen years from now, and this budget is not designed around such a distant horizon.
Heating Systems Can Wait: What Is Being Cut to Pay for the Military
Revenue for 2027 is projected at 43.3 trillion rubles, spending at 48.7 trillion, and the deficit at approximately 5.4–5.5 trillion rubles, or 2.2% of GDP. Even that figure could be achieved only by cutting virtually everything that does not shoot.
The “Social Policy” category is being reduced by 6% compared with the 2026 budget. Monthly childbirth benefits and maternity-capital payments are being cut. At the same time, Labor Minister Anton Kotyakov has announced that maternity capital for a first child will rise to 778,500 rubles in 2027, while families having a second child will receive more than one million rubles. There is only one way to combine higher payments per recipient with a smaller overall fund: assume in advance that there will be fewer recipients. Declining birth rates, which the Kremlin officially calls a threat to national security, become a source of savings in the budget tables.
Housing and municipal services spending is being cut by 9%. This decision has been made in a country that entered the 2026 New Year holidays with dozens of utility failures every day, leaving entire neighborhoods in the regions without heat and electricity. Pipes that have gone unreplaced for decades will not become any younger because funding has been cut, and the next winter threatens a repeat.
Health care and economic support each lose 3%. Education, culture, environmental protection, and several other categories formally increase, but at a rate below inflation, meaning they shrink in real terms as well.
The most painful blows are being dealt to the future. The “Innovative Economy” program loses 30%, in a budget that separately identifies technological leadership as a priority. Agricultural support is being cut by 10%, even though farmers have endured a year of strikes on grain export ports and livestock disease outbreaks, including mass culling in the Irkutsk region amid suspicions of foot-and-mouth disease. Support is being cut precisely when the sector needs it most.
The geography of spending is equally revealing. The reconstruction program for occupied parts of the Donetsk, Luhansk, Zaporizhzhia, and Kherson regions is being cut by 1%. Spending on annexed Crimea will increase by 12%. I read this difference as the Kremlin’s own internal assessment: it considers the peninsula permanently its own, while the newly occupied territories remain, for now, a combat zone in which major investment is premature.
Six Taxes That “Will Not Happen”
The spending cuts were not enough, so for the third time since the war began, the government has turned to taxes. The first round came in 2025, when a progressive personal income tax scale was introduced. The second arrived on January 1, 2026: value-added tax rose from 20% to 22%, while small and medium-sized businesses lost some of their exemptions. The result was a sharp price surge at the beginning of the year and a wave of small-business closures.
By 2026, the major tax reserves had been exhausted, so the government is now collecting money piece by piece. The top tax rate on passive income, including interest on bank deposits, is rising from 15% to 22%. Excess profits of metallurgical companies will be taxed at 30%, and gold producers at 20%; the Finance Ministry says these companies profited in 2026 from the surge in global prices. Income from mutual funds, previously tax-exempt, will be taxed at 15%. The tax on dividends paid to nonresidents will rise to 30%, even though foreigners are already largely unable to withdraw that money from special accounts. Purchases from foreign online marketplaces will be subject to 22% value-added tax, and every overseas parcel worth up to 200 euros will carry a customs fee of 100 rubles.
Economists, including those at Russia’s largest state-owned banks, estimate that this entire package will bring the treasury about one trillion rubles. That is less than one-fifth of the deficit.
Politically, something else is more interesting: each of these increases was preceded by an official promise that there would be no increase. In December 2025, commenting on the decision to raise value-added tax, Vladimir Putin said: “I understand your point about whether this will last forever. Of course not. The ultimate goal is to reduce the tax burden in the future, and the government proceeds from the assumption that this is exactly the direction it will pursue.” In the spring of 2026, Anton Siluanov dismissed talk of further tax increases as “fake rumors” and insisted that the main changes to the tax system had already been adopted. On September 9, 2026, presidential spokesman Dmitry Peskov, asked whether the government planned to raise taxes, replied: “There has been no discussion of that.” Three weeks later, a bill containing new taxes was sitting in the State Duma.
A Kremlin denial has become a reliable leading indicator.
The new taxes are being layered on top of an already expanding stream of scheduled payments. Housing and utility rates rose on October 1. Russian Railways tariffs are increasing, which will drive up the prices of everything transported by rail. The higher vehicle recycling fee continues to push up car prices, while a levy on imported electronics takes effect on December 1. In a separate bill, the government is increasing fines under several dozen provisions of the Administrative Offenses Code. The sharpest increase concerns the production and distribution of “extremist materials”: fines for individuals will rise from 1,000–3,000 rubles to 50,000–100,000 rubles, an increase of 30 to 50 times. A fine comparable to a month’s salary in many regions can be imposed for reposting material online.
The essence of this system is simple. The state is shifting its expenses onto citizens and reaching ever deeper into consumers’ pockets. The fiscal burden has long since passed the point where each additional ruble of taxation is harder to collect than the previous one: some businesses move into the gray economy, while others simply close. Economists began warning as early as the spring of 2026 that the government had gone too far. It keeps going.
Oil at $73, Treasury Revenue as if It Were $50
Even after spending cuts and tax increases, the deficit will have to be financed through borrowing. Foreign capital markets have been closed to Russia since 2022, leaving the domestic market, where investors demand a premium for wartime risk. The Bank of Russia’s key interest rate has stood at 14% since September 11, 2026. The regulator interrupted its rate-cutting cycle for the first time since April 2025 because annual inflation, as estimated on September 7, accelerated to 6.3%, while core inflation reached 7%. The Central Bank will make its next decision on October 23, and the draft budget will be one of the first things it evaluates.
Government debt will rise from 19.9% to 21.7% of GDP in 2027. In 2025, Siluanov promised that debt would not exceed 20% of GDP over the medium term and described Russia’s low debt burden as an economic advantage. By global standards, 21.7% remains low. But the relevant comparison is with interest rates, not merely the debt ratio: a country borrowing at double-digit rates while its economy grows by less than 1% is increasing its interest costs faster than its revenues.
On paper, the National Wealth Fund looks substantial, with more than 13 trillion rubles. Much of that money, however, is invested in securities issued by Russian companies that the government has supported over the years, and those assets cannot be sold quickly. According to available data, the liquid portion held in yuan and rubles has fallen to approximately 4 trillion rubles. For comparison, the deficit for January through August 2026 reached 5.8 trillion rubles against a full-year target of 3.8 trillion. In 2025, the deficit was 5.7 trillion rubles, roughly five times the amount initially approved. Another 459 billion rubles is scheduled to be withdrawn from the National Wealth Fund in 2027, equivalent to roughly 11% of its liquid assets.
At the same time, the government wants to resume replenishing the fund. The cutoff price above which oil and gas revenues are diverted into the National Wealth Fund is being lowered to $50 per barrel, even though the baseline oil-price forecast is $73. Accumulating reserves while running a 5.5 trillion-ruble deficit looks absurd, and many economists explicitly call it absurd. I see a calculation behind it. The government is insuring itself against a collapse in oil prices and signaling to the Central Bank that it is at least formally maintaining the fiscal rule, giving the Central Bank, in return, an argument for cutting interest rates. A reserve that does not really exist becomes a bargaining instrument with the regulator.
Oil itself is becoming a problem. Prices remained high for much of 2026 amid the U.S.-Israeli war with Iran, but Moscow was unable to capitalize on them. In October 2025, the U.S. Treasury imposed sanctions on Rosneft and Lukoil, the country’s two largest oil companies. During the first eight months of 2026, taxes from oil and gas production and sales were 20% below the previous year’s level. At the same time, payments to oil companies under the fuel-price damping mechanism rose by 34%. The mechanism compensates companies for domestic sales when global prices are high. Expensive oil ultimately hits the treasury twice: through sanctions-driven discounts and through compensation payments.
Economic Development Minister Maxim Reshetnikov emphasized that “external assumptions remain conservative.” The government assumes a Urals oil price of $53 and expects its discount to Brent to narrow to $20. Before 2022, the difference was $1–$2. Independent analysts are more pessimistic, with the most cautious among them expecting Urals at around $45. An $8-per-barrel difference between those estimates, at current export volumes, means hundreds of billions of rubles in lost revenue that the budget does not currently account for.
Forecasts That Never Come True
“The budget is balanced... and resilient under various scenarios,” Siluanov assured the public. The wording remains the same year after year. Only the actual numbers change, always in the same direction.
For 2025, the government expected GDP growth of 2.5% and got 1%. For 2026, it initially projected 1.3%; the latest official forecast is 0.6%. The original projection for 2027 was 2.8%; the baseline forecast has now been cut to 1.4%. International organizations are more cautious: the International Monetary Fund expects 1.1%, the World Bank 0.7%, and the Organization for Economic Cooperation and Development 0.6%. The Economic Development Ministry’s forecasts over the past two years have been off by an average factor of two, and I would not base any calculations on them. The lower end of the range is closer to reality.
Putin’s decree on national development goals, signed in May 2024, requires officials to deliver economic growth above the global average. The budget documents do not explain how an economy is supposed to accelerate from 0.6% growth to 3% or more. Investment growth, the foundation of future economic expansion, is projected at just 0.2% for 2027, a figure Reshetnikov himself called “symbolic.” Real disposable household income rose only 1.5% in the first half of 2026 after two years of rapid growth, and an even smaller increase of 1.4% is expected in 2027. The global economy is slowing, inflation worldwide is rising, and external demand will not rescue the Russian economy. Some economists are already explicitly forecasting a recession in 2027.
Among the specialists with whom I discuss Russian public finances, almost no one believes the budget will be executed in its approved form. Their argument is straightforward: the government is not even attempting to curb the military establishment’s appetite. Spending barely grows in real terms, meaning inflation is not being compensated for in advance, so the budget will have to be revised in the spring. A widespread view among economists is that the document has been designed to look more comfortable and avoid alarming the Central Bank; otherwise, the regulator would have to change the trajectory of its key interest rate. Formally, this is a three-year budget. In practice, judging by the way it was rewritten in 2025 and 2026, it is a six-month budget.
The Lesson of 1989 the Kremlin Failed to Learn
History has already seen a country that spent for years on its military at a level incompatible with a peacetime economy and relied on oil to make the numbers work. In the summer of 1989, Mikhail Gorbachev, speaking from the rostrum of the First Congress of People’s Deputies, publicly disclosed the official figure for Soviet military spending for the first time: 77.3 billion rubles. Western intelligence agencies believed the real burden was many times higher, and the debate over the precise share of defense spending in Soviet gross national product remains unresolved to this day. The collapse in oil prices in 1986 deprived Moscow of hard currency, the budget deficit was financed by printing money, the currency lost value, and goods disappeared from store shelves.
I remember January 1991 well, when the Pavlov monetary reform forced people to exchange 50- and 100-ruble banknotes. They were given three days, and the amount each person could exchange was limited. There were lines outside savings banks, bewildered retirees clutching money they had put aside “for a rainy day,” and the sense that with a single decree the state had reached into every family’s pocket. At the time, many thought it was an isolated measure. A year later, everything collapsed.
A direct analogy would be dishonest, and I am not making one. Today’s Russia is a market economy with fully stocked stores, a floating exchange rate, and a Central Bank that has so far kept inflation in the single digits. The regime relies on a far more sophisticated apparatus of control than the late Soviet Union did. Those who predicted a rapid economic collapse in the spring of 2022 were wrong, and that must be acknowledged. The Russian economy proved more adaptable than many in the West expected.
The similarity lies elsewhere. Deterioration happens gradually. One former senior Central Bank official described the process better than most: an economy can decline for a long time without collapsing, almost by stealth. People buy less, wear their clothes longer, and choose cheaper groceries. Life is different, but still tolerable. That tolerance is precisely what the draft budget is betting on. The Kremlin assumes that a society that did not rebel against a 22% value-added tax will not rebel against a tax on bank deposits, a fee on overseas parcels, or cold radiators either.
No one, including the authors of the budget, knows how many years people can live in a state of “still tolerable” before it ceases to be tolerable.
From Baku, these numbers deserve especially close attention. Russia remains a major market and source of remittances for the South Caucasus and Central Asia, and shrinking consumer demand in Russian regions will inevitably reverberate across neighboring countries. A country that devotes 35% of its budget to the military and 44% when the security apparatus is included will shape its foreign policy according to the logic of a military establishment rather than the logic of trade. For the entire region, that strengthens the case for routes connecting the Caspian to Europe while bypassing Russian territory, including the Middle Corridor. The economy of a besieged fortress drives partners away more effectively than any sanctions ever could.
Four Predictions With Dates That Can Be Checked
Analysis without testable predictions is worthless, so I am putting four on the record.
First. By July 1, 2027, the government will submit amendments to the 2027 budget, and the revised deficit will exceed the currently projected 5.5 trillion rubles.
Second. Actual spending under the “National Defense” category for 2027 will exceed 17.1 trillion rubles.
Third. The first estimate from Russia’s federal statistics agency, due in February 2028, will show GDP growth for 2027 of no more than 1%, below even the reduced official forecast.
Fourth. The draft budget for 2028–2030, which the government will submit to the State Duma in the fall of 2027, will once again contain higher taxes or fees, regardless of whatever assurances are given in the spring and summer.
If even two of these predictions fail to materialize, then I will have overestimated the inertia of the war economy. For now, everything I see in the October 1 document points in the opposite direction.
The Kill Switch and the Radiator
Two numbers from the same bill are worth keeping in mind. An additional 10 billion rubles for the Main Radio Frequency Center to finance the kill switch used to shut down the internet. A 9% cut to housing and municipal services, meaning pipes, boilers, and electrical substations.
In the winter of 2027, somewhere in a district center in the Perm region or Transbaikal, another heating plant may go cold because there was no money to repair it. Residents of a five-story apartment building who try to complain on social media may discover that mobile internet in their town has been shut down as well. Both decisions are written into the same document and will be approved by the same vote.