The army and security services will receive 44 kopecks of every ruble of federal spending in 2027. Moscow plans to plug the rest of the hole in the treasury with its own citizens' money and the sudden accommodating mood in the White House
In mid-October, the St. Petersburg city administration posted a decision on its official website that explains the Russian budget more precisely than any explanatory note from the Finance Ministry. The one-time city payment to volunteers who sign a contract with the Defense Ministry was cut from 3.5 million to 1 million rubles. The previous amount was kept for only one category: those who enlist in the unmanned systems forces.
The infantryman got three and a half times cheaper. The drone operator held his value.
The entire logic of the draft federal budget for 2027–2029, which the government submitted to the State Duma on September 30, fits into those two lines. Spending under the "National Defense" heading for 2027 is set at 17.15 trillion rubles, or 35.2% of all federal outlays. A year earlier, when it approved the previous three-year plan, the cabinet had promised 13.5 trillion for 2027, so the new figure exceeds the earlier target by roughly 27%. In nominal terms, there has never been a military line this large in post-Soviet history, and compared with prewar 2021 it has grown almost fivefold. Add the "National Security and Law Enforcement" heading, and the security bloc will absorb 21.4 trillion rubles, about 44% of federal spending. All of human capital is left with roughly 21%.
With revenues of 43.3 trillion rubles and expenditures of 48.8 trillion, the 2027 deficit is projected at 5.5 trillion, or 2.2% of GDP. Over three years, military spending will exceed 50 trillion rubles: 16.6 trillion is planned for 2028 and 16.3 trillion for 2029. On paper, the curve slopes downward. In practice, no plan of this kind has survived contact with reality in recent years, and the reduction of military spending in the "planning" years has long since become a budgetary ritual rather than a commitment.
The document itself appeared at an odd moment. On October 21, after Vladimir Putin met with Donald Trump's special envoy Steve Witkoff in St. Petersburg, Russian presidential aide Yuri Ushakov announced that Moscow agrees in principle to resume trilateral talks with Washington and Kyiv after November 10. The Kremlin is talking about a postwar security architecture while simultaneously approving a financial plan in which the war is scheduled through 2029 inclusive. Of these two signals, I believe the one backed by money.
Every Third Ruble Stamped "Classified"
The first thing that strikes you when reading the draft is not the numbers but their absence. In 2027, 34.9% of all federal spending will be classified, the highest share in at least twelve years. Of the 17.1 trillion rubles in the military line, by available estimates only about 2.3 trillion is itemized in the public annexes. The rest is a black box that the State Duma will not look into and has no desire to.
Russia has not published its actual military spending since 2022. Hence the main question the draft budget leaves unanswered: how much did the country really spend on the war in 2026? The law stated 12.9 trillion rubles. At least one amendment is known to have added about 2 trillion. Over the summer, the business press carried estimates that additional spending in 2026 could reach 5 trillion. If those estimates are accurate, the "record" 27% jump largely legalizes a reality already in place rather than ramping up the military effort.
The deficit offers indirect confirmation. Just a year ago, the government promised a 2026 deficit of 3.785 trillion rubles, or 1.6% of GDP. The estimate now stands at 7.345 trillion, or 3.2% of GDP, a record since the start of the full-scale war. Total spending in 2026 rose by 13.2%, to 48.6 trillion rubles. Money that was not in the plan went where it is customarily kept out of view.
First Deputy Defense Minister Leonid Gornin left a revealing detail. In an interview with the ministry's newspaper, he described a new model of military planning in which the army's needs are assessed in two versions at once, an "allocated limit" and an "actual requirement." Gornin called the 2026–2028 defense budget balanced. Yet the very existence of an "actual requirement" version says more than any assurance: the limit the Finance Ministry hands down is by definition smaller than what the General Staff asks for, and year after year the gap is closed by amendments that the public learns about after the fact.
The Teacher Versus the Geran: Who Pays for the Record
The 3.6 trillion ruble increase in the military line comes with a figure that is easy to overlook. Total spending for 2027 rose by only 2.7 trillion compared with last year's plan, from 46.1 to 48.8 trillion. Someone has to cover the difference, and the budget makes it quite clear who.
Against last year's targets for 2027, spending on social policy, which includes pensions and benefits, has been cut by 7%. Health care loses 6.8%, education 6%. The national economy, meaning roads and agriculture, takes the deepest cut: minus 7.4%. A comparison against a different baseline yields somewhat different figures, minus 5.5% for medicine and minus 5.4% for schools. The discrepancy comes down to methodology, but the direction of travel is the same under any method.
To put it in perspective: the 2027 federal budget will allocate about 1.82 trillion rubles to health care and 1.78 trillion to education. Interest on the national debt will cost 4.7 trillion, the highest of any year of the war. Russia will pay holders of federal loan bonds more than it spends on hospitals and schools combined, and the gap will exceed a trillion rubles.
In fairness, the regions carry a substantial share of social spending, and federal figures do not show the whole picture. Insurance pensions will be indexed twice in 2027, the first time on February 1 to match 2026 inflation. Finance Minister Anton Siluanov, speaking in the Federation Council, put the expected average old-age pension at the end of 2027 at 29,904 rubles. The pensioner will get his indexation. What he will not get is the clinic that was never built and the road whose repair was postponed.
There is also a subtler shift. Total spending in 2027 nearly matches expected outlays in 2026: 48.8 trillion versus 48.6 trillion. The government assumes inflation of no more than 4%, while current annual inflation is above 7%. With a nominally frozen budget and a growing military share, every civilian line shrinks in real terms even if it stays flat on paper, and it is this quiet mechanism, not the headline percentage cuts, that will determine the quality of life of Russians over the next three years.
The Infantry Gets Cheaper: The Regions Are First to Close Their Wallets
St. Petersburg is not alone. As of September 15, Mordovia cut its regional payment to new contract soldiers from 3 million to 800,000 rubles, almost fourfold. Irkutsk Region lowered the bar from 2.1 million to 1.8 million. In Samara Region, where contract soldiers were paid 2.2 million from February through May, the amount had fallen to 400,000 by August. The cuts are coming amid a decline in the number of contracts signed, meaning the money is running out at the same time as the volunteers.
The decisions on payments to the families of the fallen make for the hardest reading. In Kemerovo Region, in February 2026, the lump-sum payment to relatives of a soldier killed in action was cut threefold, from 3 million to 1 million rubles, even though the amount had not changed since the start of the war. Saratov Region will reduce its equivalent payment from a million to 100,000 rubles on November 1, a tenfold cut.
The picture looks paradoxical. According to independent researchers, the average regional enlistment bonus reached a record 1.65 million rubles in August 2026. There is no contradiction here: the regions are running an auction among themselves for volunteers, and some keep raising their bids while others drop out of the bidding. The first to drop out are those whose budgets are already on the ropes.
According to the Accounts Chamber, 56 regions ended the first quarter of 2026 in deficit, compared with 46 a year earlier, and their combined deficit nearly doubled, to 294 billion rubles. By midyear, according to available information, the number had risen to 65. Kemerovo Region posted a first-quarter deficit equal to half of its own tax and non-tax revenues. The combined regional deficit in 2025 set an all-time record of 1.5 trillion rubles, and in June the Federal Tax Service instructed governors to explore the possibility of raising local taxes.
The mechanics are clear. Corporate profit tax, the main source of regional revenue, fell 11.7% year over year in the first quarter. Corporate profits are sinking along with a cooling economy, and governors are cutting what can be cut without Moscow's approval. Payments to volunteers and to the families of the fallen turned out to be exactly that kind of item.
Meanwhile, the federal center is budgeting more than 1.5 trillion rubles in 2027 for pensions for military personnel and their families alone. The veteran who has already fought remains Moscow's obligation. The recruit who has yet to be lured in becomes the governor's problem.
A Drone Worth More Than a Man: Where the Real Money Is Hidden
In the public part of the budget, drones look modest. The national project "Unmanned Aircraft Systems" will receive 103.3 billion rubles in 2027–2029, with annual funding rising from 28 billion to 43.3 billion by 2029. Workforce training for the industry is allotted 270 million rubles over three years, whereas a billion was earmarked for that purpose in 2026 alone. Industry and Trade Minister Anton Alikhanov, at a meeting of the relevant State Duma committee, cited yet another figure: about 49 billion rubles for the development of unmanned systems over three years. Two official estimates differ by a factor of two, and that discrepancy is itself a diagnosis: in this frame of reference, civilian drones remain a side issue.
The real drone money lies in the classified portion of the military budget. It can be gauged only by indirect evidence. According to Ukrainian military intelligence, the state order for Geran strike drones and decoy drones in 2026 exceeded 100,000 units, and since the summer monthly output of jet-powered Geran-4 and Geran-5 variants has reached as many as 4,000, not counting up to 2,000 Geran-2s. American analysts in March estimated total output at roughly 5,500 drones a month. The spread between the estimates is wide, but both point to the same trend.
The hub of this industry is the Alabuga special economic zone in Tatarstan. According to data based on satellite imagery, 33 air defense positions have been set up around it since spring 2026. By comparison, the presidential residence at Valdai is protected by 31 towers and two sites for antiaircraft systems. The expansion of the Alabuga-Volokno plant is expected to make it possible to produce airframes for roughly another 28,000 drones a year; the project is due for completion in 2027 and to reach full capacity by 2029.
This is where the real fault line of the new budget runs. An infantryman who has to be lured with millions is becoming too expensive and too unreliable an asset for the state. A drone is cheaper and requires no payment to a widow. The Kremlin is moving the war onto the assembly line, and the St. Petersburg payment table merely records that choice honestly.
From an economic standpoint, this bet contains a trap. The drone industry is practically the only sector growing quickly and steadily. Its output burns up within weeks of assembly and adds nothing to the country's productive capital. Growth of this kind shows up in GDP but not in prosperity.
A Tax on Those Who Managed to Save
To close the gap, the Finance Ministry has once again reached into citizens' pockets. On January 1, 2026, the base VAT rate already rose to 22%. Now the government has submitted bills No. 617-9 and No. 618-9 to the State Duma, which from 2027 will change the taxation of people with savings.
The main innovation is moving "passive" income onto the general progressive personal income tax scale of 13% to 22%. This covers dividends, interest on deposits, income from securities transactions, and proceeds from the sale of property. These are currently taxed at 13% to 15%. By the Finance Ministry's own estimate, the changes will affect about 4 million people, no more than 6% of taxpayers, and the reform will spare small deposits of up to 1 million rubles.
The rest of the package is targeted. Mutual funds will themselves pay 15% on passive income. The tax rate on dividends paid to nonresidents on Type C accounts will rise from 15% to 35%, a direct signal to foreign shareholders whose money has been frozen in Russia since 2022. Purchases from foreign online stores will be subject to VAT at the full 22% rate immediately, although the previous plan provided for a gradual transition through 7% in 2027 and 14% in 2028. Extractive companies are being asked to pay 30% on additional income above 2025 levels, and gold miners 20%. Fixed-sum tax penalties will rise in most cases by a factor of 1.16 to 3.3.
Altogether, by estimates, the tax innovations could bring the treasury about 1.5 trillion rubles. The figure is impressive, but it covers only slightly more than a quarter of the 2027 deficit.
The logic of the choice is transparent. Over two years of a high key rate, which still stands at 14%, the well-off segment of society earned considerable interest on deposits. The state has discovered this layer and decided to skim it. At the same time, indirect levies are rising: the indexation of utility rates in 2026 was moved to October 1, and annual inflation jumped from 6.35% in September to 7.22% by mid-October, above the Bank of Russia's year-end forecast of 6% to 7%. The regulator, which paused its easing cycle in September, is widely expected by the market to hold the rate steady at its October 23 meeting.
The borrower of last resort remains the budget itself. In 2027, the government plans to borrow 6.1 trillion rubles on the domestic market, compared with 5 trillion in 2026, and public debt will rise from 19.9% to 21.7% of GDP. By the standards of developed countries, that is not much. For a country cut off from external capital markets and paying high interest on its bonds, the burden looks entirely different.
An honest caveat is in order here. The Russian economy is not collapsing. After contracting by 0.2% in the first quarter, GDP grew 1.3% year over year in the second. Unemployment fell to 2.2% in August. Real wages rose 6% over seven months, although growth had slowed to 3.3% by July. On September 21, Siluanov described a deficit of around 2% of GDP as one that "poses no particular risks," and in a narrow accounting sense he is right.
There will be no catastrophe. There will be a slow squeeze in which each successive year is a little poorer than the last and the state takes a little more. The government itself projects real disposable income growth of just 1.4% in 2027.
Oil at $110, Yet the Treasury Runs Dry
The strangest paradox of Russia's 2026 budget has to do with oil. The Middle East crisis and shipping disruptions in the Strait of Hormuz have pushed world prices back into triple digits. In March, a barrel of Brent cost as much as $119; on the morning of October 22, it was above $112, the highest since May. According to the Economic Development Ministry, the average price of Urals crude in September was $92 a barrel, against the $59 assumed in the budget.
One would think the Kremlin should be swimming in petrodollars. Instead, oil and gas budget revenues in September came to 452.4 billion rubles, 22.3% less than a year earlier. Over nine months, the treasury received 5.47 trillion rubles, 17.2% less than in the same period of 2025. The government has already cut its annual oil and gas revenue plan from 8.9 to 7.6 trillion.
There are two explanations. The first is a strong ruble: in September, the dollar averaged about 85 rubles, against the 92.2 assumed in the budget. The second is the war on Russian refineries. Since the start of 2026, by Western counts, Ukraine has attacked Russian oil refineries at least 114 times, more than twice as often as a year earlier. In June, refining volumes fell to a twenty-year low. July drone strikes reached the Omsk refinery, 1,550 miles from the border. On July 8, the government banned diesel exports, adding them to the existing ban on gasoline exports. Damper payments to oil companies for domestic market supplies keep growing as world prices stay high, eating up the tax windfall from expensive oil.
Back at the start of the year, the Finance Ministry was reportedly preparing a 10% cut in all "nonsensitive" spending, and the budget was spared that sequester only by the price spike that followed the outbreak of war in the Middle East. In other words, the financial stability of the Russian state in 2026 rested on missiles flying over the Persian Gulf, a fact few in Moscow are willing to say out loud.
Against this backdrop, the Finance Ministry is taking a step that looks both sensible and telling. Starting in 2027, the cutoff price in the budget rule will be lowered from $59 to $50 a barrel: everything above that will go into reserves. The liquid portion of the National Wealth Fund shrank to 3.8 trillion rubles as of October 1, or 1.6% of GDP, a multiyear low. On October 9, in the State Duma, Siluanov put a price on the decision: the nine-dollar difference, in his words, is worth "almost a trillion rubles of the spending we finance from oil and gas revenues."
Translated from bureaucratese: in 2027, the war will be paid for less with oil and more with taxes. The non-oil-and-gas deficit, according to the minister, will fall to about 5% of GDP, the lowest since 2008. This kind of consolidation is good for budget stability. For a citizen whose tax on deposit interest will rise in 2027, it means exactly one thing: oil rents no longer shield him from the bill for the war.
Diesel for Trump: The Kremlin's Chief Sponsor Sits in Washington
If taxes are the internal source of rescue, the external one turned up where it was least expected. On October 9, after a phone call with Putin, Donald Trump announced a deal: Russia would immediately release 300,000 metric tons of diesel fuel onto the market and then, depending on the condition of its refineries, another 3 million tons. The U.S. Treasury Department issued a temporary license easing sanctions on Russian diesel through April 2027. On October 11, Trump announced an "energy truce" between Russia and Ukraine, which, judging by Kyiv's reaction, came as a surprise above all to Volodymyr Zelensky. On October 16, the American president signed an executive order allowing the new sanctions and tariffs provided for under Lindsey Graham's 2026 law on sanctions against Russia and Iran to go unenforced.
The arithmetic of the deal looks almost comical. The combined 3.3 million tons of diesel amount to roughly 25 million barrels, less than one day's worth of global consumption of the fuel. A volume like that is unlikely to move prices at the pump ahead of the November 3 midterm elections. Washington's motive is nonetheless clear: according to Yuri Stankevich, deputy chairman of the State Duma's energy committee, the Russian ban removed about 10% of diesel supply from the world market, and amid the Hormuz crisis every ton counts. For Moscow, the irony is double, since it was Moscow itself that banned diesel exports in July because of shortages at home.
The real price of the deal is measured in something else. Trump publicly called on Zelensky to stop striking Russian fuel infrastructure, in effect placing the blame for the global diesel shortage on Kyiv. According to available information, the American president's son-in-law, Jared Kushner, repeated the same demand in talks with the Ukrainian side. If the "energy truce" holds, the Kremlin will get what it could not secure with air defense systems or money: quiet over its refineries. A recovery in refining will reduce damper payments and restore exports of petroleum products, closing part of the hole in oil and gas revenues. No line of the Tax Code can give the budget as much as a single post on Truth Social.
The American establishment understands this. On October 13, twelve senators from both parties, members of the Foreign Relations Committee, urged the president to cancel the deal immediately. Republican Lisa Murkowski also came out against it, proposing instead to tighten sanctions and tariffs. The White House is standing its ground for now, and Trump himself repeated this week that he expects Zelensky to agree to the deal. Moscow responded with a goodwill gesture: on October 21, the day of Witkoff's visit, Stephen Hubbard, an American retiree convicted in Russia, was released.
Who wins? The Kremlin gets breathing room for its refining sector and a precedent for sanctions relief without a ceasefire. Trump gets a headline before the elections. The losers are Ukraine, which is being stripped of its most effective tool of economic pressure, and Europe, which, by all appearances, nobody consulted about the deal. Beijing is a separate story: according to American media reports, during the October 9 call Putin proposed holding a summit on Ukraine with Trump and Xi Jinping, but without Zelensky.
The 2027 budget is drawn up as if there were no deal and the war will go on. The deal with Washington is drawn up as if the war could be frozen without political concessions from Moscow. Between these two documents lies the Kremlin's real strategy: negotiate to relieve pressure, and keep military spending high so as not to lose leverage.
A Soviet Lesson Half-Learned
My generation remembers how bookkeeping in which the army always comes first ends. In the second half of the 1980s, the Soviet economy carried a military burden out of proportion to its capacity, and in 1986 oil lost more than half its value within a few months. Budget holes were plugged with State Bank loans and shortages of goods until, on April 2, 1991, state retail prices were raised all at once, wiping out the savings of millions of families.
Russia's current leadership has learned this lesson, but only halfway. The central bank does not print money to cover the deficit, prices are set by the market, reserves were built up in advance, and the Finance Ministry is lowering the cutoff price even in the middle of a war in order to replenish the fund. The technocrats have done everything they can to avoid repeating 1991. The other half of the lesson they cannot learn, because it is not economic: a country that spends more on its army than on social policy, the economy, housing and utilities, health care, and education combined will sooner or later shift the bill onto its own citizens. All that remains to choose is the form of payment, inflation or taxes.
For Russia's neighbors, from the South Caucasus to Central Asia, this budget leads to a pragmatic conclusion. Moscow in the coming years will be a partner with shrinking civilian demand and a dwindling ability to pay for loyalty. Influence that cannot be paid for is usually replaced by pressure, and every capital that shares a border or a market with Russia would do well to keep that in mind.
A Calendar for the Next Six Months
Forecasting the Russian budget is a thankless task, but I am prepared to put four verifiable claims on record, with dates.
First. The State Duma will pass the budget in its third reading by November 30, 2026, and the "National Defense" heading for 2027 will change by less than 1% from the 17.15 trillion rubles submitted. Parliamentary debate will center on the tax amendments, and that is where the government will make cosmetic concessions.
Second. The planned 2027 deficit of 2.2% of GDP will not hold. Economists at the largest state-owned bank estimated it at 2.7% of GDP even before the draft was published. I expect that no later than June 30, 2027, the government will officially raise its deficit estimate to at least 3% of GDP, as it has done for the past three years in a row.
Third. Trilateral talks will take place after November 10, but no comprehensive ceasefire agreement will be signed before December 31, 2026. It suits Moscow better to drag out the process as long as it yields sanctions relief.
Fourth. The temporary license for Russian diesel, which expires in April 2027, will be extended or replaced with broader relief unless a sharp rupture between Washington and Moscow occurs by then. Trump could abandon it only at the cost of admitting that his deal with Putin has failed, and he does not like admitting things like that.
A Budget That Votes With Drones
The draft 2027 budget is more honest than any of the Kremlin's statements about peace. It shows a state preparing to fight at least until the end of the decade and no longer able to do so on oil money. The bill is passing to depositors and the regions, and through them to everyone who walks into a district hospital. At the same time, Moscow has found in Washington a counterpart willing to cover part of that bill with sanctions relief, demanding neither peace nor a troop withdrawal in return.
The main choice, however, was made not at the Finance Ministry but in that very St. Petersburg table. The state has decided that a living soldier costs too much and that a drone is just right. In this budget, human capital has become a line for savings, and machine capital a line for growth.
Starting November 1, the family of a Saratov man killed at the front will receive 100,000 rubles from the region. A recruit to the unmanned systems forces who signs a contract in St. Petersburg will still receive 3.5 million. That thirty-fivefold difference is Russia's real budget for 2027.