Russia Plans Record Defense Spending for 2027, Raising Taxes and Cutting Social Programs

Russia's government unveiled its draft 2027 budget on Thursday, allocating 17.1 trillion rubles (about $205.2 billion) to defense — 26% more than previously planned and 375% above pre-war 2021 levels. Defense would account for roughly a third of federal spending, a post-Soviet record in nominal ruble terms.

Analysts say Russia retains financial reserves to continue the war, but households, businesses and public services will increasingly shoulder the cost. Economist Boris Grozovsky wrote in an analysis for the exiled outlet IStories that the message is clear: everyone will pay for the war as much as they can, while the government gives back as little as possible.

The federal budget deficit reached 5.65 trillion rubles, or 2.6% of GDP, in 2025. A shortfall of 7.3 trillion rubles (3.2% of GDP) is projected for 2026, narrowing to 5.4 trillion rubles (2.2%) in 2027. Sberbank economists, however, forecast a higher 2.7% deficit, questioning whether the government can achieve the needed spending restraint and revenue growth. The government plans to borrow 6.1 trillion rubles next year, while debt servicing is projected to reach 4.6 trillion rubles, or 9.4% of total federal spending.

Cuts and new taxes

To help close the gap, the draft budget cuts healthcare allocations by 5.5%, education by 5.4% and social programs by 6% compared with earlier 2027 plans. Funding for the federal cancer program would fall sharply, from 44.9 billion to just 3.9 billion rubles.

Proposed tax increases, expected to raise 1.5 trillion rubles in total, include a 22% VAT on purchases from foreign online retailers, a new customs fee on small parcels, and higher taxes — up to 22% — on income from deposit interest, dividends and property sales. Analyst Alexandra Prokopenko warned the government may soon approach the limits of how much more revenue it can extract through taxation to fund the war.