By Darya Korsunskaya, Reuters, 9/18/25
Summary
-Russia wants to balance the budget while maintaining reserves
-VAT hike is under discussion, no decision yet
-Putin pledged no major tax changes before 2030
-Earlier VAT hike spurred inflation
MOSCOW, Sept 17 (Reuters) – The Russian government is considering raising the rate of value-added tax to keep the budget deficit in check and maintain reserves, four sources told Reuters, despite public assurances from President Vladimir Putin that there will be no tax rises.
The draft budget is expected to be submitted to parliament on September 29. Its key components are agreed with Putin beforehand and are unlikely to be significantly altered during the formal parliamentary debate.
Russia, in the fourth year of its war in Ukraine, has raised personal income and corporate taxes this year, but the government still had to triple its federal budget deficit estimate to 1.7% of gross domestic product (GDP) in May.
It is now set to exceed that target, according to an unnamed official quoted by state media this month. The 0.9% of GDP deficit for 2026 included in a budget law last year also looks likely to be exceeded.
INCREASE COULD HALVE THE PROJECTED BUDGET DEFICIT
Four sources close to the government confirmed a report this week by The Bell, a media outlet based outside Russia, that the government is discussing lifting the value-added tax (VAT) rate to 22% from 20% to curb the deficit.
The report did not specify a possible timeline for a decision but one of the sources told Reuters it was being considered for the 2026 budget as long as the budget rule which sets aside windfall oil revenues remains in place.
“How can the deficit be reduced while adhering to the budget rule? Only by raising taxes, because there’s hardly anything left to cut, either military spending or social spending,” one source said.
VAT accounted for 37% of federal budget revenues in 2024 and the possible increase could halve the projected 2026 deficit, according to Reuters calculations.
Russia’s economy has continued to grow despite tightening Western sanctions over the war in Ukraine. But GDP is expected to slow to around 1% from 4.3% last year and inflation remains above 8% in a country where much of the workforce and 40% of revenues now go to defence and security.
Government spending is the key driver of economic growth in Russia, and with Putin expressing displeasure at the economic slowdown and the need to continue financing the war of attrition in Ukraine, spending cuts are unlikely.
NO FINAL DECISION YET
Finance Minister Anton Siluanov has insisted that the budget rule, under which energy revenues collected above Russia’s target oil price, currently $60 per barrel, are directed to the fiscal reserve fund, will remain in place.
After Russia sent troops into Ukraine in 2022, Western nations prohibited insurers and maritime service providers from facilitating Russian oil exports unless they were below $60 a barrel. India boosted its Russian oil imports sharply but now faces pressure from U.S. President Donald Trump to halt them.
The Russian fund, which is separate to the country’s central bank reserves, currently has about 4 trillion roubles in liquid assets, which can also be used to cover the deficit. This year the government plans to tap the fund for 447 billion roubles.
Putin, who in 2024 pledged no major changes to the tax system before 2030 following the tax hikes, which were introduced in 2025, has asked the government on September 5 to increase revenues through higher productivity, not taxes.
The source who said there was little room for cuts in the federal budget, argued that military spending could not be cut and minor cuts in the social sphere would not help much.
“It is like shearing a piglet—lots of squealing, not much use. If we could cut 1–2 trillion roubles, sure, but you can’t cut amounts like that, they just aren’t there. You can trim a few million, maybe hundreds,” the source said.
GROWING CONCERN ABOUT THE BUDGET
A two percentage point 2019 VAT hike contributed 0.6 percentage points to inflation that year, according to the central bank, which has pledged to halve inflation to return it to its 4% target.
However, central bank governor Elvira Nabiullina cautiously backed a tax increase, saying after the September 12 board meeting that it was better to raise extra revenue than to widen the deficit.
She linked the size of the deficit to the central bank’s ability to cut rates further from the current 17%, a level economists see as too high to revive growth.
Putin has said that Russia’s low level of debt allows it to borrow more and that new debt should not be feared, but rates even for the government are around 13%, with interest expenses expected to reach 2% of GDP in 2025.
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Russia unveils ‘muscular’ budget changes to counter sanctions, oil price falls
By Gleb Bryanski and Darya Korsunskaya, Reuters, 9/18/25
Summary
-Finance Ministry unveils measure to ensure reserve replenishment
-Measure to be included in the 2026 draft budget
-Ministry says the measure will boost resilience to sanctions
-Draft budget to be submitted to parliament on September 29
MOSCOW, Sept 18 (Reuters) – The Russian Finance Ministry announced a new measure on Thursday that it said was aimed at shielding the state budget from oil price fluctuations and Western sanctions targeting Russian energy exports.
Under the new initiative, set to be implemented next year, the government will lower the cut-off price for oil above which oil revenues go into the fiscal reserve fund to try to ensure that the fund is sufficiently replenished.
“To make our finances more resilient, we are proposing a reduction in dependence on various constraints, whether price-related or volume-related, in the budget’s reliance on oil and gas revenues,” Finance Minister Anton Siluanov said at a public forum.
RUSSIA’S OIL AND GAS SALES ARE EXPECTED TO FALL SHARPLY
The measure comes as Russia’s state oil and gas sales in September are set to fall, opens new tab by around 23% from a year earlier on lower prices and a stronger rouble, according to Reuters’ calculations.
The draft budget is expected to be submitted to parliament on September 29. Sources told Reuters that the government was considering raising the rate of value-added tax to keep the budget deficit in check and maintain reserves.
The Kremlin declined to comment on the VAT hike, with spokesman Dmitry Peskov saying that the government was handling the draft. Key budget figures are traditionally agreed with President Vladimir Putin before the budget is made public.
Putin, who met key cabinet members this week to discuss the budget, expressed displeasure at the slow pace of economic growth, which is expected to slow to about 1% from 4.3% last year.
MEASURE WILL STRENGTHEN RUSSIA’S BUDGET, SAYS SILUANOV
Siluanov has been seeking to restore the oil price mechanism, known as the “budget rule”, which was abandoned after the start of the war in Ukraine, although Russian media reported that he had pushed for a bigger reduction in the cut-off price.
Under the rule, the taxes resulting from when the price exceeds the agreed cut-off price go to the fiscal reserve fund, while the rest of the income is used to cover budget expenses. When the price falls below the cut-off level, the reserves are used to cover the resulting shortfall.
If the rule, first introduced by Siluanov’s predecessor Alexei Kudrin in 2004, is not in place, the budget can become more vulnerable when the oil price is going down.
Siluanov said the new measure would help to bring the share of energy revenues in the state budget down to 22% from about 25% in the first eight months of 2025, making the budget more “muscular”.
The fiscal reserves created under the budget rule carried Russia through several downturns and helped it withstand Western sanctions.
Siluanov said the cut-off price would be lowered by $1 every year to bring it to $55 per barrel in 2030. The cut-off price is currently at $60 per barrel.
The fiscal reserve fund, which can be used to cover the budget deficit, currently has about 4 trillion roubles ($48.25 billion) in it. The government this year plans to tap the fund for 447 billion roubles ($5.39 billion) to cover part of the budget deficit, which is expected to exceed 1.7% of GDP.
The 2026 draft budget set the average price of Urals crude at $59 per barrel, Siluanov said, implying that the fiscal reserves would not be replenished at the same cut-off price.
Speaking alongside central bank Governor Elvira Nabiullina, Siluanov paraphrased a quote attributed to Tsar Alexander III, that the army and the navy are Russia’s best allies, adding that sustainable finances were a third.
Nabiullina said a more balanced budget would enable the central bank to lower its key rate to an average of 12%–13% next year from the current 17%, a level economists and business leaders see as needed to spur faster growth.
($1 = 82.9000 roubles)