Russian President Vladimir Putin, on Friday, July 12, 2024, signed a bill that raises income taxes for the rich, as part of efforts to help fill government coffers depleted by the war in Ukraine.
The tax hikes were being presented domestically as “systemic reforms”.
Putin signed the package of tax rises worth almost $30 billion, tapping workers and companies to contribute funds for his Ukraine offensive.
Russia’s spending has outrun revenue by tens of billions of dollars since it ordered troops into Ukraine in February 2022, helping the economy defy expectations of a deep recession but also pushing it into rare budget deficits.
Russia ran a budget deficit of around 3.2 trillion rubles ($36 billion) in 2023, equivalent to two per cent of GDP.
Putin on Friday signed into law a set of amendments to Russia’s tax code that includes increases on income taxes for high earners and corporate taxes paid by businesses in a bid to help plug the fiscal hole.
They were passed by Russia’s rubber-stamp parliament earlier this week.
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“The changes are aimed at building a fair and balanced tax system,” AFP quoted Finance Minister Anton Siluanov as saying when the proposed changes were laid out in May.
He said the extra funds would bolster Russia’s “economic well-being” and go towards a series of public investment projects.
The tax hikes – which are being presented domestically as “systemic reforms” – will raise around 2.6 trillion rubles ($29 billion) in 2025 when they come into force, the finance ministry estimates.
Russia has budgeted for a 1.1-per cent shortfall this year – modest compared to many countries.
But with Russia locked out from Western financial markets and around $300 billion of its foreign currency reserves frozen by sanctions, Moscow’s public finances are a key indicator of how long and how aggressively the Kremlin can fund its military campaign on Ukraine.
Russia has dipped into its sovereign wealth fund and borrowed from state-owned banks to cover the deficit over the last two years.
Spending on defence and security has ballooned to more than eight per cent of Russia’s GDP, Putin said in May.
He called the state’s military budget a “great resource” that should be used “carefully and effectively.”
Russia offers its soldiers fighting in Ukraine huge salaries and benefits and has also pumped resources into domestic weapons’ manufacturers as its offensive in Ukraine has dragged into its third year and looks locked in a state of attrition.
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