First, Russia’s total defense spending is expected to decline ever so slightly by 2026 to 13 trillion rubles, or around $157 billion. This follows a record high in 2025, where the country allocated 13.5 trillion rubles, or $163 billion, for military expenditures. The Russian Finance Ministry has already proposed more tax hikes. They are persuaded to fund a lengthy established defense and security base, as the overall budget deficit is projected to reach 1.6% of GDP in 2026.
As highlighted through the war against Ukraine that began in 2022, Russia’s economy has been hard hit. The developments from this crisis are creating changes that reach every industry. Spending on defense skyrocketed to maintain rapid warfighting capabilities. While this boost has been great for economic productivity, it’s been inflationary, pushing interest rates up to 8.1% in August. In an effort to combat inflation, the central bank’s benchmark interest rate is now at 17%.
Finance Minister Anton Siluanov defended the measures as a way of keeping economic stability. He cautioned that if debt grows dramatically, inflation may pick up much faster than expected. Under such a scenario, the only viable policy would be to hike the key interest rate.
“An uncontrolled increase in public debt would lead to accelerated inflation and, consequently, an increase in the key rate. Conversely, the decision to balance the budget through tax increases gives the Central Bank room to ease monetary policy. The key rate is crucial for investment growth and economic growth,” – Anton Siluanov
In 2026, Russia’s economy is projected to be increasing by 1.3%, after a stronger recovery of 4.1% growth in 2024. With economic growth stalled and revenues evaporating, we can’t afford to wait. Non-partisan experts have been cautioning that Moscow can no longer rely on fiscal stimulus strategies that have previously driven wartime growth. Instead, the national government seems to be doubling down on austerity measures that will only limit civilian economic development efforts.
“As economic growth stalls and revenues decline, Moscow is no longer able to pump up the fiscal stimulus that fueled earlier wartime expansion, instead embracing austerity measures that threaten to further strangle the civilian economy,” – Alexander Kolyander
The other tax increases that have been proposed would increase the Value-Added Tax (VAT) from 20% to 22%. Furthermore, they want to reduce the threshold for small businesses, making them pay VAT when their income reaches only 10 million rubles instead of 60 million rubles. These changes will overwhelmingly put more economic burdens on the average Russian.
As Carnegie Russia Eurasia Center fellow Alexandra Prokopenko noted, that’s a key detail. The Russian public is starting to bear the financial burden of the war effort. She emphasized the impact of these tax increases on average Americans.
“The Russian public is paying for the war,” – Alexandra Prokopenko
Prokopenko then explained that the Russian people will bear the primary burden for paying for the war.
“Footing the bill will be the Russian people, who face further tax hikes,” – Alexandra Prokopenko
Despite these financial adjustments, Prokopenko highlighted that these measures should not be interpreted as a signal of an impending end to hostilities in Ukraine.
“This is certainly not a sign that the Kremlin plans to end its war against Ukraine,” – Alexandra Prokopenko
Siluanov promised stakeholders that total spending in 2026 would remain at 2025 levels. He assured that it would still be higher than 2024’s already-approved spending levels. He signaled that money would go to nonmilitary functional areas supporting national security, too.
“Overall spending in 2026 remains at a level comparable to 2025, but is higher than the 2024 level,” – Anton Siluanov
At the same time, Russia is wrestling with a toxic mix of war and economic strife. As we address the pandemic and look toward future prosperity, defense spending is likely to play an increasing important role in shaping military and civilian economic policy.