Russia Imposes New Taxes on Miners and Savers to Fund War Deficit
Rising military spending forces tax hikes on investment income and mining profits to cover deficits.
1Escalating Fiscal Deficit Pressures
Russia's state budget deficit reached 5.8 trillion rubles, approximately $72 billion, by August. This figure is nearly 50% higher than the previous year and exceeds the revised target of 4.8 trillion rubles. The surge is primarily driven by massive military expenditures and tepid economic growth caused by international sanctions and labor shortages.
2New Tax Burdens on Industry
The government has proposed a 20% to 30% windfall profits tax targeting mining companies. This measure specifically impacts producers of iron ore, nickel, and gold, who benefited from rising global prices. These tax hikes represent a strategic shift toward extracting revenue from specific sectors to sustain the ongoing military operations in Ukraine.
3Increased Levies on Personal Savings
Citizens face higher tax rates ranging from 13% to 22% on interest, dividends, and property sales proceeds. Previously, income under 2.4 million rubles was taxed at 13%, with higher amounts at 15%. Additionally, new charges on foreign online purchases and dividends for investors from unfriendly countries are set to take effect January 1.
4Foreign Assets as Revenue Sources
A subsidiary of German retailer Metro was seized under temporary administration laws, resulting in a one-billion-ruble contribution to the military. While Metro AG denied involvement, the subsidiary redirected funds to buy anti-drone equipment and vehicles. This move highlights the growing risk that foreign companies may be viewed as sources of windfall revenue.
5Erosion of Economic Development
Consultant Chris Weafer notes that while Russia has financing for the next two years, it comes at the expense of household costs and infrastructure. The economy is becoming increasingly skewed toward state-linked military industries. Consequently, there is significantly less capital available for normal economic development, leading to long-term public welfare erosion.
6Limited Domestic Financing Options
Sanctions prevent the Kremlin from accessing international bond markets, forcing reliance on domestic resources. The National Wealth Fund's liquid assets, including gold and Chinese currency, have dwindled to 1.7% of GDP. The Kyiv School of Economics warns that financial buffers could be exhausted by early 2028 without further tax or spending adjustments.
7Banking System Under Strain
The government has pressured banks to fund defense companies through loans, effectively shifting war costs onto private balance sheets. Banks previously balked at low interest rates on government bonds, forcing the state to offer better terms. Future stability remains fragile, as forced lending could undermine the entire financial system's long-term health and liquidity.
8Fragile Equilibrium and Future Risks
Russia's current economic stability relies on a delicate balance of oil export earnings and state spending. Any adverse shock, such as a drop in global energy prices, could destabilize this equilibrium. The government's limited room for maneuver suggests that further social spending cuts or aggressive tax increases are likely inevitable by 2028.
Original article: Fortune — Russia Imposes New Taxes on Miners and Savers to Fund War Deficit