Russia to Sharply Increase War Spending and Cut to Social Programs

The Kremlin’s latest budget proposal signals a sharp turn toward war‑financing at the expense of domestic welfare, a move that may further strain relations with the West and deepen hardship for ordinary Russians. The 2027 budget, presented to the State Duma this week, earmarks an unprecedented surge in defence spending while cutting back on social programs, signalling that the government is prioritising the ongoing conflict in Ukraine above all else. Analysts note that the shift reflects both the realities of the protracted war and a growing sense of economic isolation that Russia faces in an environment where sanctions have tightened and investment has dried up.The defence allocation is the largest in Russian history, rising to roughly 35 per cent of total government expenditure – a jump of about 12 percentage points over the 2025 level..

The finance ministry says the increase will cover new weaponry, upgraded logistics, and the expansion of the strategic missile forces that have been at the forefront of the conflict since 2022. In practical terms, this translates into a 20‑per‑cent rise in the overall defence budget, pushing it to approximately 4.8 trillion rubles. The government claims that modernising its military capabilities is essential to maintain a deterrence posture against NATO and to counter what it calls “Western aggression.”At the same time, the proposal reduces the social welfare budget by 8 per cent, a cut that will affect pensioners, low‑income families, and a range of state‑sponsored health and education services..

The pension fund, for instance, sees its contributions cut by 1.5 trillion rubles, which will be offset by an increase in the tax rate on high‑income earners and on corporations that have benefited from state subsidies. While the government defends these moves as necessary to keep the economy afloat, critics warn that the reductions could lead to a spike in poverty and social unrest, especially in regions that already suffer from high unemployment and limited access to public services.The economic rationale behind the budget is anchored in a grim forecast. Russia’s gross domestic product is expected to grow at a modest 1.5 per cent over the next two years, according to the Central Bank’s projections..

Inflation, meanwhile, is projected to hover around 12 per cent, reflecting the continued impact of sanctions on import prices and the volatility of the ruble. The state therefore sees defence spending as the only lever that can preserve the integrity of the nation’s strategic interests while stabilising the domestic economy. This calculation, however, overlooks the broader long‑term cost of sustained military engagement, both in human and financial terms.Sanctions have played a pivotal role in shaping the budgetary landscape..

The United States and European Union have imposed a series of restrictions on Russian banks, technology firms, and high‑tech exports, which has made it increasingly difficult for the Kremlin to secure foreign credit. The government’s response has been to rely more heavily on domestic borrowing, a strategy that already carries a high risk of default if the ruble were to plunge further. The State Duma’s finance committee has approved a new borrowing package of 3 trillion rubles, to be issued in a mix of short‑term bonds and longer‑dated loans..

This will increase the national debt to about 70 per cent of GDP – the highest level in Russia’s history. The debt servicing burden is already significant, with interest payments alone estimated to reach 1.2 trillion rubles in 2027, and the budget’s deficit is projected to widen further.In addition to the fiscal tightening, the government is also increasing tax rates on high‑income earners and large corporations. The top marginal income tax rate will rise from 22 per cent to 30 per cent, while a new tax on large corporations will raise the effective tax rate on those earning more than 10 billion rubles per year by an additional 5 per cent..

The Ministry of Finance says that the tax hike is a means to counterbalance the increased defence spending without having to rely solely on borrowing. However, industry associations warn that the higher corporate tax could dampen investment, reduce job creation, and undermine Russia’s competitiveness in global markets, especially in the energy sector, which still accounts for a large portion of the country’s export earnings.The social policy cuts are aimed at a number of programmes, including the state pension system, subsidised housing, and free school meals. The pension fund, for instance, will reduce the retirement age for women by two years and will lower the pension index for those who have spent more than 40 years in public service..

These changes are justified by the finance ministry on the grounds that they will help the state balance its books. Yet, the pension cuts are likely to erode the purchasing power of older Russians, who already live on a modest income. The cuts are expected to result in a 5 per cent decline in pension payments, which could push an estimated 5 million people below the poverty line.The budget also includes a new “war‑economy” fund, a state‑owned entity that will be tasked with ensuring that resources are allocated efficiently to the military and to the “defence‑related industries.” The fund will receive an initial allocation of 200 billion rubles, which will be used to support domestic production of weapons, aircraft engines, and ammunition..

The fund will be governed by a council of senior officials from the Ministry of Defence, the Ministry of Industry and Trade, and the Central Bank. While the state says this will reduce reliance on foreign imports, some critics worry that this centralised control may stifle competition and innovation in the defence sector.The impact of the new budget on the population is likely to be uneven. While the eastern regions of Russia, which are heavily industrialised, may absorb the tax hikes more easily, the central and southern regions, where the cost of living is higher and economic diversification is lower, are at greater risk of increased poverty..

The Russian government claims that the budget will maintain a “balanced” approach by ensuring that public services remain available to those who need them most. However, the cuts to free school meals and subsidised housing, in particular, raise concerns about the long‑term effects on child welfare and housing affordability.The Kremlin’s policy shift also has implications for its diplomatic relationships. By prioritising war funding over social spending, the Russian government signals that it is willing to accept a higher cost of living for its citizens in order to maintain its military posture..

This stance could be perceived by the European Union and the United States as a sign that Russia is determined to resist pressure from the West, potentially prolonging the conflict. The United Nations has called for a diplomatic resolution to the war, noting that the continued escalation of military spending by both sides.