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Russia’s draft federal budget for 2026–2028 redirects funds from social and regional programs toward the military-industrial complex and security forces, according to a report by the Ukrainian Foreign Intelligence Service (SZR).
The intelligence notes that the Kremlin is increasing taxes and reducing social spending in an effort to sustain the growing costs of the war against Ukraine.
“The Russian authorities plan to raise the value-added tax (VAT) rate from 20% to 22%,” the report states.
Finance Minister Anton Siluanov has already admitted that the change will lead to higher prices and additional pressure on businesses.
Small Business and IT Sector Hit Hard
Beginning next year, small and medium-sized enterprises in Russia will face a new taxation system: the annual income threshold for the simplified tax regime will be cut sixfold — from around $723,000 to $120,000.
For IT companies, preferential insurance contributions will be canceled — rising from 7.6% to 15%.
Major Cuts to Civilian Programs
Funding will be reduced for almost half of Russia’s state programs — 18 out of 51.
The largest cuts include:
- “Chemical and Biological Safety” (–36%),
- “Development of the Aviation Industry” (–30%),
- “Energy Development” (–29%).
At the same time, spending on the “Development of Electronic and Radio-Electronic Industry” — which directly serves the defense sector — will increase 4.4 times, reaching $2.2 billion next year.
The SZR notes that increasing taxes and slashing social spending demonstrate the Kremlin’s intent to finance the war at the expense of its population.
Mounting Deficits and Lavish Spending on Putin
Russia’s Pension and Social Insurance Fund, which provides payments to 40 million pensioners, is projected to run a deficit of about $8.3 billion this year.
Meanwhile, the cost of maintaining Vladimir Putin and his administration will rise again in 2026 — to $354 million, or roughly $1 million per day.
This amount exceeds the annual budgets of entire Russian regions such as Kalmykia or the Jewish Autonomous Oblast.
War Spending Over Welfare
Ukrainian intelligence concludes that the Kremlin’s fiscal adjustments reveal its true priorities: maintaining the war effort and regime stability at the cost of ordinary Russians’ welfare.
“The regime seeks to preserve its ability to wage war and suppress dissent, even if it means impoverishing the population,” the report says.
