The Hole In The Russian Budget Has Grown Even Larger
- 12.08.2026, 7:00
Expenses grew nearly twice as fast as revenue.
Russia's federal budget deficit widened again in July, the Ministry of Finance reported on Tuesday.
Over the first seven months, the government collected 22.112 trillion rubles in taxes—8.8% more than a year earlier. At the same time, expenditures grew nearly twice as fast as revenues—by 14.5%, to 28.567 trillion rubles, noted The Moscow Times.
As a result, by early August, a “hole” of 6.455 trillion rubles had formed in the budget—an amount equal to Moscow’s annual budget, four times the annual budget of St. Petersburg, and 11 times the annual budgets of major regions such as Tatarstan or Krasnodar Krai. Compared to the same dates last year, the deficit has increased 1.4-fold and already exceeds the full-year target (3.786 trillion rubles) by nearly double.
The fundamental outlook for the budget continues to deteriorate, notes Finam strategist Yaroslav Kabakov: Oil and gas revenues for the first seven months fell by 16.8%, and the growth in revenue from the increased VAT (up 24.9%) barely offsets this shortfall. At the same time, the Ministry of Finance is spending more and more, and Kabakov estimates that, by all accounts, spending could exceed the target by nearly 5 trillion rubles by the end of the year.
Balancing the budget is becoming increasingly difficult, notes Ilya Sokolov, a leading researcher at the Gaidar Institute: the surge in oil and gas revenues due to the war in Iran proved to be short-lived and was largely spent on subsidies to oil companies, whose refineries are burning down and shutting down one after another.
Non-resource revenues are increasing only due to tax hikes, not economic growth, Sokolov emphasizes: GDP grew by only 0.3% in the first half of the year, and in the second half, the economy could slide into recession. This will result in a shortfall of 600–800 billion rubles in VAT, as well as in corporate and personal income taxes, Sokolov warns. By the end of the year, the budget deficit could approach 10 trillion rubles, Kabakov forecasts.
Military spending remains the main unknown for the budget: it is clear that it will exceed the target, but it is not yet known by how much, notes Ekaterina Vlasova, an economist for Russia and the CIS at Bloomberg Economics. According to Bloomberg, the Ministry of Defense is demanding a 40% increase in the military budget, or 4–5 trillion rubles. The Ministry of Finance had planned to cover the military’s demands through borrowing, but in July was forced to suspend government bond auctions due to the market crash.
Most likely, after the State Duma elections, fiscal tightening will once again be on the agenda, Vlasova warns: the authorities may cut spending on non-military items or raise taxes. Due to problems raising debt, another VAT increase cannot be ruled out, according to economist Kirill Rodionov.
Since the start of the invasion of Ukraine, the budget has spent nearly 50 trillion rubles on the war. To cover military and weapons production costs, the government spent three-quarters of the National Wealth Fund’s available funds, imposed export and exchange rate duties, raised the mineral extraction tax, and and confiscated private assets worth 4 trillion rubles. In 2025, corporate income tax and personal income tax for high-income citizens were increased, and in 2026, VAT and taxes on small businesses rose.
“The easy money for the Kremlin has run out,” says Agat Demarais, a senior fellow at the European Council on Foreign Relations: having started with businesses and billionaires, the authorities have shifted their focus to the wallets of ordinary people. This does not mean that Vladimir Putin “will run out of money soon, but he is certainly running out of politically acceptable ways to find it,” Demaarais emphasizes.