Russians Will Be Fleeced In Three Ways

The 2027 budget hints at this.

Russia’s financial plans for next year seem unrealistic and will almost certainly be revised. Moreover, it’s clear in which direction. But when it comes to specific procedures, the authorities have a choice. The public, however, will have no such choice.

The draft three-year budget is finally available. And it’s not all just fantasy.

Moderate Deteriorations

Of course, let’s set aside the plans laid out for 2028 and 2029. Projections for two and three years ahead are drawn up out of habit. They are never followed through on.

However, the forecast for government revenue in 2027 (43.3 trillion rubles) can be viewed with some confidence. Government finance officials are adept at calculating revenue and are usually not far off the mark. For example, this year they promise to collect 41.2 trillion rubles. That’s only 0.9 trillion more than what was included in the initial budget proposal for 2026. That’s a perfectly acceptable margin of error.

So, we can take the planned revenue for 2027 (43.3 trillion rubles) more or less seriously. In nominal terms, this is 5.1% more than expected this year. A comparison with expected inflation (more on that later) suggests that no real growth in revenue is anticipated.

This is because revenue from oil and gas is expected to decline, while numerous increases in minor taxes will yield less than one trillion. This time, they did not risk raising any of the major taxes, as they did last year and the year before. And among the government’s new measures that citizens without substantial savings will have to deal with, two are particularly significant.

First, the accelerated rise in utility rates.

Second, the deliberate weakening of the ruble, which will bring the treasury an additional 0.8 trillion rubles in import VAT. Incidentally, that’s the same amount as all the aforementioned tax increases combined.

But let’s be objective: the regime’s revenue program for 2027 does not promise a sharp deterioration in living standards. It promises a moderate one.

The Mystery of Their Proposal

Now let’s look at expenditures. That’s pure fantasy. The 2027 budget calls for a total of 48.7 trillion rubles—the same amount projected for the current year (48.5 trillion). In other words, adjusted for inflation, spending is supposedly set to decrease.

The point of the proposal is quite clear. It’s a petition from government finance officials and civil service managers. In this way, they’re reporting to the leader that his impromptu spending sprees are alarming them. And that even with these—clearly underestimated—expenditures, they will bring the federal budget to a deficit (5.4 trillion rubles) that until recently was considered insurmountable.

Now I’ll draw up my own budget forecast. It won’t be difficult.

For this year, spending was originally planned to total 44.1 trillion rubles, but according to current estimates, it will exceed that plan by 4.4 trillion rubles. The reason is that the main portion of military spending (expenditures on “national defense”) was, for some reason, planned for 2026 to be even slightly lower than in 2025 (12.9 trillion rubles versus 13.5 trillion rubles the previous year).

Putin authorized this for some reason, but then, of course, corrected it and, in an ad hoc move, added another 4–5 trillion to the overall list of government spending—for the war. The total came to 17 trillion rubles, or slightly more.

Now, looking at the 2027 spending plan, we see 17.1 trillion rubles allocated for “national defense.” Of course, this isn’t the final figure. It simply mirrors the one from 2026. And when 2027 rolls around, the leader will add at least another 4 trillion. And it will come to, say, 21 trillion rubles. You have to admit, that’s plausible.

In that case, unless spending cuts are implemented, federal spending will rise in 2027 to approximately 53 trillion rubles, the federal deficit will approach 10 trillion, and the deficit of the entire budget system could exceed 11 trillion rubles. In 2025, it amounted to 8.3 trillion rubles and was deemed unacceptable, and in 2026, it is projected to reach 8.6 trillion rubles—and make no mistake, it will once again be deemed unacceptable.

Even complex things can be simple

It does not follow from the above that “Putinomics” will collapse in 2027. Most likely not. But its leaders will have to choose one of the obvious ways to shift the regime’s financial problems onto its subjects. Or put all of them into action at once.

There are three approaches: simple, complex, and forward-looking.

The simplest option is to accept rising inflation. It’s already rising on its own. Last year’s rate was 5.6%, and this year’s forecast is already nearly 7%. The figures are underreported, but there is no doubt that price growth is accelerating.

With budget deficits like these, inflation is accelerating on its own. And the public is getting nervous, which is fueling it: over the past six months, nearly 3 trillion rubles have flowed into cash circulation. People have started buying more and putting less money into their bank accounts.

If things get really tight, the interest rate could even be lowered. The parameters of the budget plan seem to suggest exactly that.

Central Bank Chair Elvira Nabiullina is in no hurry to lower it and even promises to bring inflation down to the so-called target—that is, 4 percent—by 2027. But let’s not take her words too seriously. The promise to reach the “target” next year is a long-standing central bank ritual.

In addition to the simple method, there’s also a complex one: budget cuts. It’s already been put into action. In the 2027 budget, nearly all national projects, federal programs, and other non-military expenditures (such as education and healthcare) are being cut in nominal terms or at least in real terms.

But if truly significant savings are needed urgently, then so-called “protected” expenditures will have to be cut. That is also possible, but this year at the federal level, even unprotected spending has not been reduced as promised. At the regional level, however, spending cuts have been implemented, and authorities promise to continue them. So if push comes to shove and the boss gives the order, even a difficult task will immediately become simple.

Bosses are always impatient

And finally, the third and highly promising method. Let’s not predict the confiscation of deposits or the refusal to grant loans. That’s vulgar and unprofessional. The key here is to understand the problem itself and decipher the emotions that are overwhelming Russia’s leaders.

Domestic debt (OFZs) is set to increase quite exorbitantly by 2027—from 40.2 trillion to 48.1 trillion rubles. Debt service is projected to rise from 3.9 trillion rubles this year to 4.6 trillion in 2027. These expenditures will already be on par with the expected revenue from the issuance of new OFZs—5 trillion rubles.

As for the money held by individuals in accounts at state-affiliated banks, it currently stands at around 68.5 trillion rubles, and an estimated 8 trillion rubles in interest must be paid on it annually. These banks, I repeat, are state-owned, and the public’s deposit of funds there also constitutes an unconditional government loan.

If we add these two figures together and eliminate overlaps—that is, subtract the funds from individuals that the banks have shifted into OFZs—it turns out that the regime’s debt to financial institutions and its own citizens has already reached a good 90 trillion rubles. And servicing OFZs and paying interest on deposits will amount to about 13 trillion rubles next year.

Meanwhile, the regime’s inflow of new funds (also totaling through OFZs and individual accounts) in 2027 will likely be half as much—perhaps 6–7 trillion rubles. Or even less. This is because individuals have almost stopped depositing money into their bank accounts. On the contrary, they’ve gotten into the habit of withdrawing funds, forgetting that a war loan doesn’t allow for such an option.

The habits of all regimes in the Russian Empire have been very consistent in this regard: when domestic debt begins to cost them more than it brings in, their patience runs out rather quickly. And they come up with something to get out of this unpleasant situation.

Putin’s regime will also find a way out. The only question is what that solution will be and when.

***

Since the Russian economy has no reserves left, by the sixth year of the war, the financial burden will immediately translate into a deterioration in the lives of the civilian population. The budget plan for 2027 greatly underestimates the impending deterioration, but it hints at the ways in which it will be implemented.

Sergey Shelin, The Moscow Times

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