Russia prepares tax hikes. Again.

Hello! Welcome to your weekly guide to the Russian economy, written by Alexandra Prokopenko and Alexander Kolyandr and brought to you by The Bell. This week we report on the government’s plans to raise taxes and cut spending to keep the state’s finances on track and make sure it can carry on funding the war in Ukraine.

Mind the gap: Government scrambles for cash amid widening deficit

As the government draws up its budget for next year facing a widening deficit, it must do two things simultaneously if it wants to bridge the spending gap—boost income and cut expenditure. To make up the shortfall, The Bell discovered that the authorities are discussing another round of tax rises, having only just hiked them at the start of this year. A serious option could be to increase VAT for the first time since 2019. 

Budget problems

Russia’s government finances have been under pressure since the start of the year. The ongoing war, impact of sanctions and the Kremlin’s desire to maintain morale across society make it impossible to cut either military or welfare spending—the largest parts of the budget. At the same time, earlier economic forecasts upon which the budget was drawn up have proved overly optimistic. Low oil prices, a strong ruble and an economic slowdown have reduced expected revenues.