Russia braces for more tax rises to fund the Ukraine war
Russia will need to raise taxes further to fund its war in Ukraine, according to economists who say revenue-raising measures already announced will not be enough to fund the country's ballooning military spending.
Russia's draft 2025 budget allocates about one-third of total expenditure, or 6.3% of GDP, to the military - the highest level since the Cold War. For the first time, the share of spending on defence will be double that of social spending.
The huge increase in military spending is generating inflationary heat in Russia's economy. Interest rates have risen to their highest since 2003 and the rouble has slid to a one-year low against the dollar. With Western sanctions effectively barring Moscow from the international bond markets its fundraising options are limited.
The government has already started raising taxes to fund its war in Ukraine, now in its third year. A major tax reform is expected to generate additional revenues worth 1.7% of GDP in 2025. Economists argue this will not be enough.
"The adjustment of domestic taxes will remain a constant focus for the authorities. It is possible that in 2025 we will see many initiatives to amend tax legislation and regulations," said Alexei Klimyuk from Alfa Wealth.
An expected fall in the price of oil, Russia's main export commodity, is also casting a shadow over the country's finances. The draft budget projects the price of oil will decrease on average from $70 per barrel in 2024 to $65.5 per barrel in 2027, denting state revenues.
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