Putin's Tax Hikes to Fund Ukraine Conflict
Russian President Vladimir Putin has signed several decrees to raise taxes on high earners and businesses. This move aims to finance the increasing public spending linked to the ongoing conflict in Ukraine. The decrees were published on the official portal of the Russian government following the approval of both chambers of Parliament, the Duma and the Federation Council.
Since the start of the offensive in Ukraine in February 2022, Russia's public spending has significantly outpaced its revenues. The federal deficit reached 0.5% of GDP in the first six months of 2024 and is projected to rise to 1.1% by the end of the year, according to the Ministry of Finance. Despite this, the Russian economy showed signs of growth in 2023.
New Tax Thresholds and Corporate Tax Increases
To address this financial imbalance, the Russian state will introduce new tax thresholds for the highest incomes, set at 18%, 20%, and 22%. Additionally, the corporate income tax will be increased from 20% to 25%. Finance Minister Anton Silouanov explained that these changes aim to establish a fair and balanced tax system.
In an effort to minimize the impact on the general population, already grappling with an inflation rate of 8.6%, only 3% to 4% of Russians and businesses will be affected by these tax increases. The tax rate for the rest of the population will remain at 13%, unchanged since 2001.
An estimated 27 billion euros in additional revenue is expected to be generated by these tax increases by 2025. Officially, this revenue is earmarked for financing a series of 'national projects,' multi-annual programs announced earlier this year by Vladimir Putin, mainly focusing on social spending.
However, the primary objective appears to be financing the war effort in Ukraine, which has proven to be both economically and humanly costly. The Russian military budget surged by almost 70% in 2024, representing 6.7% of GDP. In mid-May, Putin replaced long-time government member Sergei Shoigu with interventionist economist Andreï Beloussov to 'rationalize' spending and boost production for the military.
- The Russian government is under significant financial strain as it continues to fund its military operations in Ukraine. The budget deficit, although relatively low compared to other major economies, is a pressing issue due to the country's inability to access international markets for financing.
- The increase in the military budget from 60 billion dollars in 2023 to an estimated 140 billion dollars in 2024 underscores the heavy financial burden of the conflict. The new tax measures are seen as a critical step in securing the necessary funds to sustain the ongoing 'special operation' in Ukraine.
