Page 68 - bne IntelliNews Russia OUTLOOK 2025

increase from 2024 and nearly four times the pre-war figure of RUB3.5 trillion in 2021.
The military budget is at a level comparable to countries like South Sudan, where military expenditures dominate, and way ahead of most EU countries that are struggling to meet the Nato mandated 2% of GDP. By contrast, Ukraine is planning to spend 26% of GDP on defence in 2025.
Russia's classified spending – covering undisclosed security-related expenses – will account for nearly a third of the federal budget, totalling RUB12.9 trillion.
Defence and security together will consume 40% of the federal budget, or RUB16.9 trillion. This includes RUB3.459 trillion allocated to internal security forces, such as the police, Rosgvardia and special services.
Total federal spending is projected at RUB41.469 trillion in 2025, with revenues of RUB40.296 trillion. The resulting budget deficit, expected to shrink from RUB3.3 trillion in 2024 to RUB1.2 trillion in 2025, will be partially offset by a sweeping tax reform.
"The war continues to suck resources out of the Russian economy. As in previous wartime years, the biggest single item of state spending in 2025 will be the armed forces. Spending on national defense and security alone will top 8% of GDP (a post-Soviet record). And all the increase in non-oil-and-gas revenues (which are expected to rise 73% in 2025 because of tax hikes and GDP growth) will go to the military. Burgeoning military spending will continue to bleed the civilian economy, slowing economic growth. Dampened growth and high inflation will, in turn, make inequality more visible, fuelling popular discontent," says Prokopenko.
MinFin will introduce progressive income taxes for the first time in 2025 and increased corporate taxes are anticipated to generate an additional RUB2.6 trillion annually, with income taxes contributing RUB0.5 trillion. President Putin has argued that the reforms are needed to create an equitable tax system for the people after two decades of a flat income tax that benefits the rich and punishes the poor.
Currently there is a debate over what the increased military spending will do to the cooling economy. Some have predicted that sky-high interest rates will lead to a wave of bankruptcies in2025, while others have argued that Russia’s economy is more robust than it first appears and that income and VAT taxes will allow the Ministry of Finance (MinFin) to recoup much of the military spending.
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