On September 30, Russia's government submitted its draft federal budget for 2027–2029 to the State Duma, offering another opportunity to examine the economic cost of its war against Ukraine. On the surface, it is about revenues, expenditures and deficits; in reality, it also charts the state's political direction. Previous three-year plans repeatedly suggested that extraordinary military spending would eventually subside. The new document instead finances a prolonged confrontation with increasingly expensive and inflexible resources.
When analyzing Russia’s federal budget, it is important to look beyond the figures and consider it from several different perspectives, three of which are particularly relevant. The first is accounting: how much money will the government collect, what will it spend it on, and who will cover the shortfall. The second concerns credibility: successive revisions to the rolling three-year plan show whether official assumptions survive contact with reality. The third is political: a budget tells the population, the governing elite and foreign governments what objectives Moscow is pursuing, how achievable they are, and, above all, which commitments can be reconsidered and which remain non-negotiable in pursuit of those objectives.
The arithmetic of war: higher costs, fewer choices
What do the numbers tell us? For 2027, the draft projects 43.3 trillion rubles (about 461 billion EUR) in federal revenues and 48.7 trillion in expenditure, leaving a deficit of 5.44 trillion, about 2.2% of GDP. The gap is expected to remain above 5 trillion rubles in both 2028 and 2029. The deficits may seem manageable, but their origins and financing tell a different story. Oil and gas receipts have become less reliable, while new revenue increasingly comes from businesses and households. Russia has raised corporate income tax, introduced a more progressive personal income tax scale, and increased VAT to 22%. What once could be partly financed by energy windfalls now requires extracting more from the domestic economy.
The federal budget reflects Moscow's priorities like a mirror. In 2027 the allocation of 17.1 trillion rubles for defense represents approximately 35% of the federal budget. Add national security and law enforcement, and the total rises to 21.4 trillion rubles, or 44%. This is more than twice the combined federal share devoted to social policy, education and healthcare. Classified appropriations, dual-use infrastructure and regional recruitment payments obscure further costs. Including military-related items concealed elsewhere in the federal accounts could bring the share closer to half, although secrecy prevents a reliable calculation.
The growing appetite of the security-related component of the budget, amidst dwindling reserves, is increasingly putting pressure on other expenditures. Spending on civilian infrastructure, housing, transport and support for nonmilitary industries is being squeezed. Regions and insurance funds pay for much education and healthcare, so federal reductions do not equal cuts in total provision. They nevertheless place more pressure on regional finances.
Deficits are also becoming more expensive to finance. The Finance Ministry plans to borrow roughly 7.7 trillion rubles domestically in 2027, while debt servicing alone is expected to cost about 4.6 trillion, approaching one tenth of federal expenditure. Debt remains relatively modest, but borrowing is costly and private demand for bonds limited.
It is interesting that, this time, the three-year targets are increasingly exacerbating tensions—not only between the military and civilian hierarchies but also within the financial agencies themselves. The Finance Ministry benefits from lower interest rates, whereas the Bank of Russia must consider the inflationary impact of taxes, spending and administered prices. Planned utility tariff increases of around 11% in 2027 are hardly consistent with the government's 4% inflation target. Budget planners and inflation fighters face conflicting incentives.
The moving horizon of promised normality
To understand the significance of the latest figures, it is worth looking beyond a single fiscal year. Russia's three-year budgeting system has produced a recurring pattern since the full-scale invasion in 2022. Each new plan allocated large resources to immediate military needs, while its later years often promised some moderation. The political message was convenient: sacrifice now, and normality may return in a year or two. But this carrot was pushed further away with every new budget. What was originally presented as temporary pressure increasingly became a structural characteristic of the economy.
The comparison between forecasts and subsequent revisions is particularly instructive. The budget adopted in late 2024 projected a federal deficit for 2025 of just 1.17 trillion rubles, around 0.5% of GDP; the eventual deficit was around 2.6% of GDP. The budget approved in late 2025 initially allowed for a 2026 deficit of 3.79 trillion rubles. By autumn 2026, the government's own estimate had risen to about 7.3 trillion, while expected spending climbed from 44.1 trillion to roughly 48.6 trillion. The revision of the 2027 spending plan is equally revealing. A year ago, expenditure of roughly 46.1 trillion rubles was envisaged for 2027, including 13.6 trillion for defense. The latest proposal raises these figures to 48.7 trillion and 17.1 trillion respectively. War requirements repeatedly overrule planned fiscal discipline.
But it is not just that expenses are rising; it is also important that financing them is becoming increasingly difficult. Earlier in the conflict, the government had more buffers with which to absorb such surprises. The liquid part of the National Wealth Fund was approximately 8.8 trillion rubles in early 2022; it is now closer to 3.8 trillion.
The Kremlin has the capacity to sustain rising expenditures, but that capacity is diminishing. Russia retains gold and energy revenue, but not all its reserves are liquid, and replenishment is harder. Tax increases cannot be repeated indefinitely without affecting business investment and household purchasing power. Borrowing shifts today's costs into future interest payments. Reducing civilian expenditure risks undermining the infrastructure and human capital needed for productivity. The three-year plan provides roughly 50 trillion rubles for defense. It does not predict every military development, but offers little basis for expecting a return to prewar fiscal priorities.
A political message of endurance — and its limits
Finally, the budget is a political statement addressed to several audiences. The military is promised priority; officials and regions are told to adjust. The public is expected to absorb higher taxes and persistent inflation. And to Ukraine and its Western partners, it conveys an intended message: Russia is prepared to continue the confrontation, believes it can mobilize the necessary resources and expects others to tire first. The allocations imply this message without explicitly predicting war until 2029.
This message also reflects the asymmetry of Russia's political system. The military leadership can demand additional financing, while households, independent businesses and regional administrations have far less influence over the priorities they are asked to fund. Limited visible resistance should not be mistaken for universal agreement; households are largely left to adjust to higher bills. The Kremlin still avoids a fully centralized war economy, relying on private markets and central bank instruments. That makes mobilization less conspicuous, not less costly. It distributes the cost across prices, tax bills, credit conditions and opportunities foregone.
The decisive question, then, is whether the image of controlled endurance is as solid as the Kremlin wishes it to appear. Russia is not facing automatic fiscal collapse, but its choices grow narrower. Sanctions and attacks on energy infrastructure create revenue uncertainty; a shrinking liquid reserve leaves less protection against shocks; expensive domestic debt competes with private investment; and inflation complicates the relationship between fiscal needs and monetary stability. Europe has reduced its dependence on Russian energy, and old trade relationships cannot simply be restored by decree. A state may be able to demand greater sacrifice from its citizens, but it cannot decree that such sacrifice has no economic consequences.
Russia's 2027–2029 budget is therefore far more than an exercise in making revenues and expenditures add up. It is both a record of increasingly costly choices and an attempt to convince audiences at home and abroad that Moscow has the means to outlast them. The message is that confrontation will continue, and that someone—households, businesses, regions or future taxpayers—will provide the money.
Yet the apparent confidence of this declaration should not be confused with unlimited capacity. Finance, productive capacity and political patience are all finite. The Kremlin is presenting itself as an immovable power capable of waiting out its opponents. The budget suggests a more complicated reality: a state still capable of paying for war, but having to sacrifice more of its future with every new year it does so.
