Moscow will have to raise taxes to continue war against Ukraine - Reuters

Russia will have to raise taxes even more to finance its war against Ukraine. Economists say that the measures already announced to increase revenues will not be enough to finance the country's rapidly growing military spending.

This is reported by RBC-Ukraine with reference to Reuters.

Russia's draft budget for 2025 allocates about a third of all expenditures, or 6.3% of GDP, to military needs, the highest level since the Cold War. For the first time, the share of defense spending will be twice as high as social spending.

“The 2025 budget suggests that Putin is forced to cut spending in almost all areas to finance the war,” says economist Sergei Aleksashenko, a former deputy governor of the Central Bank.

The loud increase in military spending is causing inflation in Russia's economy. Interest rates have risen to their highest level since 2003, and the ruble has fallen to a one-year low against the dollar. With Western sanctions effectively excluding Moscow from international bond markets, its fundraising options are limited.

The government has already started raising taxes to finance its war in Ukraine, which is now in its third year. A major tax reform is expected to bring in additional revenues of 1.7% of GDP in 2025. Economists argue that this will not be enough.

“Adjustment of domestic taxes will remain in the center of attention of the authorities. It is possible that in 2025 we will see many initiatives to change tax laws and regulations,” said Oleksiy Klimyuk of Alfa Wealth.

Author - Olena Madiak, 31/10/2024