Russia’s 2027 budget shifts the burden to domestic taxpayers as military spending rises, oil revenues weaken & liquid reserves face mounting pressure.
Behind the overwhelming vote in favor lies a budget whose financing has quietly changed character. Planned spending under the "National Defense" chapter rises to 17.15 trillion rubles (US$212.5 billion) in 2027, 35.2 percent of all federal spending, while oil and gas are expected to supply only 16.2 percent of revenue. The war economy is no longer being tested mainly at the oil terminal. It is being tested at the cash register, in the tax office and in the ruble savings of households, and the decisive variable for 2027 is whether the government can keep raising domestic revenue fast enough to hold the deficit near 2 percent of GDP without draining a reserve fund that has already shrunk to a thin liquid cushion. A spike in world oil prices since late summer offers relief, but under the new rule most of that windfall is meant to be saved rather than spent, which makes it a test of discipline rather than a rescue.
The scale of the shift shows up first in the revenue ledger. Oil-and-gas receipts were 11.13 trillion rubles in 2024; the Ministry of Finance (MinFin; Министерство финансов Российской Федерации) now estimates 7.58 trillion for 2026 and plans 7.00 trillion (US$86.8 billion) for 2027. Non-oil-and-gas revenue moves in the opposite direction, from 25.58 trillion in 2024 to 36.29 trillion (US$449.9 billion) in 2027, according to the ministry's tables reproduced in the Federation Council's analytical note on the bill. In 2022 oil and gas still provided 41.6 percent of federal revenue. By 2029 the draft puts the figure at 15.9 percent.
Among domestic revenue sources, value-added tax (VAT) has become particularly important. VAT is now charged at 22 percent, and in January–September it raised 13.47 trillion rubles (US$166.9 billion), up 27.4 percent on a year earlier, while oil-and-gas revenue fell 17.2 percent to 5.47 trillion rubles (US$67.8 billion), according to the ministry's preliminary nine-month execution data. VAT alone thus brought in roughly two and a half times as much as hydrocarbons. The proposed 2027 package extends the same logic to the income side of household balance sheets. Siluanov's presentation to the government on September 24 set out plans to move passive income such as deposit interest into the progressive personal income tax scale of 13 to 22 percent, to apply VAT to cross-border e-commerce and to raise about 500 billion rubles a year by bringing shadow activity into the tax net.
That design matters because it changes who carries the cost of the war. When oil financed four rubles in ten, the bill fell largely on foreign buyers of Russian crude, and Western sanctions on oil revenue struck directly at military financing. With oil at about one ruble in six, the Stockholm International Peace Research Institute (SIPRI) assessed that sanctions aimed at oil-and-gas earnings will have a diminishing effect on Russia's capacity to fund the war. The corollary is less often stated. Consumers paying a higher VAT and savers paying more on interest income become the main funders, and their tolerance is a political quantity that no export cap can measure.
The defense numbers themselves need careful reading before any conclusion is drawn about intentions. SIPRI's table of the draft shows the defense chapter at 17.15 trillion rubles in 2027, falling to 16.61 trillion in 2028 and 16.30 trillion in 2029. Adding the military items that SIPRI counts under other chapters, mainly "Social policy" and "National Security and Law Enforcement," total military spending reaches 19.47 trillion rubles (US$241.4 billion) in 2027, or 40.0 percent of spending and 7.8 percent of forecast GDP.
The apparent jump of 41 percent from the 2026 law overstates the real change. The 2026 budget law set National Defense at 12.12 trillion rubles, yet SIPRI's reading of execution data suggests actual 2026 military spending may reach about 17 trillion rubles, in which case 2027 could be lower in real terms. Part of the jump is also an accounting move. Compensation for troops wounded in combat and for the families of those killed was a classified item in the 2026 "Social policy" chapter and does not appear there in the 2027 draft, which, in SIPRI's assessment, almost certainly explains the fall in military spending outside the defense chapter. The more defensible reading is that the 2027 budget formalizes a level of war spending already reached in 2026, rather than signaling a new escalation.
Those defense totals also come with a large blind spot. The State Duma's budget committee put the open part of the defense chapter at 2.3 trillion rubles in 2027, which implies that roughly 14.8 trillion rubles, about 87 percent of the chapter, is classified. The table below treats that as an uncertainty band rather than a point estimate.
| Item, 2027 draft | Trillion rubles | US$ billion | Share of total spending |
|---|---|---|---|
| Total federal spending | 48.74 | 604.1 | 100.0% |
| National Defense chapter | 17.15 | 212.5 | 35.2% |
| Of which: open lines (budget committee) | 2.30 | 28.5 | 4.7% |
| Of which: classified (derived: chapter minus open lines) | About 14.8 | About 184 | About 30.5% |
| National Security and Law Enforcement chapter | 4.29 | 53.1 | 8.8% |
| Defense plus security chapters | 21.43 | 265.7 | 44.0% |
| Total military spending, SIPRI definition | 19.47 | 241.4 | 40.0% |
Table 1: Defense and security lines in the 2027 draft. Sources: SIPRI (defense chapter, SIPRI total); chapter allocations reported from the bill's materials (security chapter); budget committee figures as [reported]((https://sotaproject.com/news/119361) (open lines). Classified figure and shares are IndraStra Global arithmetic. Conversions at 80.6761 rubles per dollar, October 30, 2026.
The classified band affects how far any outside estimate can be trusted, and it cuts both ways. Spending inside a secret line can be redistributed during the year without public amendment, so actual outlays can exceed the plan, as SIPRI's 2026 estimate suggests. It can also fall short without anyone outside the government knowing. What can be said with confidence is the floor. Defense and security chapters together take 44 cents of every federal ruble in 2027, before any of the 310 billion rubles left in an unallocated reserve, which budget committee chairman Andrei Makarov told deputies would be distributed before the second reading, is assigned.
If domestic taxes carry the spending, the deficit shows how much they still fall short. The 2026 budget law planned a deficit of 3.79 trillion rubles, 1.6 percent of GDP. In September the ministry raised its full-year estimate to 7.34 trillion rubles (US$91.0 billion), or 3.2 percent of GDP, citing higher priority spending and lower base oil-and-gas revenue, and the nine-month gap already stood at 5.19 trillion rubles, per its execution data. The 2027 draft therefore asks for a fiscal tightening of about one percentage point of GDP in a single year, while keeping war spending at its 2026 run rate.
The headline parameters below put that adjustment in one place.
| Federal budget | 2026 (law) | 2026 (estimate) | 2027 (draft) | 2028 (draft) | 2029 (draft) |
|---|---|---|---|---|---|
| Revenue, trillion rubles | n/a | 41.18 | 43.30 | 45.83 | 48.62 |
| Spending, trillion rubles | n/a | 48.53 | 48.74 | 50.95 | 53.87 |
| Deficit, trillion rubles | 3.79 | 7.34 | 5.44 | 5.12 | 5.25 |
| Deficit, % of GDP | 1.6 | 3.2 | 2.2 | 1.9 | 1.9 |
| Oil-and-gas share of revenue, % | n/a | 18.4 | 16.2 | 16.7 | 15.9 |
| Forecast GDP, trillion rubles | n/a | n/a | 248.3 | 263.7 | 281.7 |
Table 2: Main parameters of Russia's federal budget, 2026–2029. Sources: Ministry of Finance tables in the Federation Council analytical note; 2026 law deficit from ministry execution data. "n/a" marks figures not checked against the 2026 law in this analysis.
The adjustment is meant to be achieved without spending cuts in nominal terms. Spending in 2027 is almost flat against the 2026 estimate, at 48.74 trillion versus 48.53 trillion rubles, which, with inflation forecast to slow only to 4 percent by the end of 2027, implies a real cut of several percent. The heavy lifting is done by revenue growth of 5.1 percent, almost all of it from non-oil sources growing 8.0 percent. Siluanov also told the government that spending would exceed the structural level allowed by the budget rule by 1.5 trillion rubles in 2027 and 0.5 trillion in 2028, with a return to a zero primary structural deficit in 2029. The rule is being reinstated, but on a two-year delay.
Oil remains the wild card in that arithmetic, and the budget rule converts it into a precise formula. Oil-and-gas revenue is split into a "base" amount, calculated at the cut-off price, and an "additional" amount that goes to the NWF.
Here Rog is total oil-and-gas revenue in billions of rubles, Rbase is base revenue at the cut-off price, PU is the realized Urals price in dollars per barrel, Pb is the cut-off price of $50, and s is the revenue gained per dollar of Urals price above the cut-off, at the forecast exchange rate and output. The draft's own figures pin down s. Planned 2027 oil-and-gas revenue is 7,003.5 billion rubles against base revenue of 6,657.8 billion, a difference of 345.7 billion rubles at the forecast Urals price of $53, which gives s≈345.7/3≈115 billion rubles (about US$1.4 billion) per dollar. The same 345.7 billion appears in the deficit-financing table as the planned transfer to the fund, so the identity holds inside the bill.
That formula explains why the current oil shock looks so different in Moscow from the view in markets. The Ministry of Economic Development's forecast, presented on September 24, assumed Brent at $73 and Urals at $53 for 2027, and acknowledged that futures prices were higher because of the situation around the Arabian Peninsula. Urals averaged $92.08 a barrel in September, and Brent traded at $118.07 on the morning of October 30.
A crude linear reading of the formula shows what is at stake. If Urals averaged $90 through 2027, s (PU - Pb) would be about 115 × 40, or roughly 4.6 trillion rubles (US$57 billion), most of the planned deficit. That figure is an illustration, not a forecast. The coefficient is calibrated only around $53, and a higher oil price would strengthen the ruble and reduce the ruble value of each dollar earned. It would also enlarge the fuel "damper" payments to refiners, which reached a record 306 billion rubles in September and helped keep that month's oil-and-gas receipts to 452 billion rubles. Tax payments also lag prices by a month, so September's price spike reaches the budget only in October.
The reserve that would absorb a reversal is smaller than its headline suggests. The NWF stood at 12.98 trillion rubles (US$160.9 billion) on October 1, 2026, but only 3.80 trillion rubles (US$47.1 billion), or 1.6 percent of GDP, was held as liquid deposits at the CB, according to the Ministry of Finance. The rest is tied up in shares, bonds and loans that cannot be spent quickly. A simple coverage ratio puts a number on that limit.
where c is the share of one year's planned deficit that liquid reserves could cover, L is the fund's liquid assets on October 1, 2026, and D is the 2027 planned deficit, both in billions of rubles. Liquid reserves would finance about seven months of the planned 2027 gap and nothing beyond it. The liquid portion fell from 4.0 trillion rubles on September 1, so the windfall has not yet started rebuilding it.
That constraint returns the burden to domestic borrowing, which brings in the central bank. The CB held its key rate at 14.00 percent on October 23, leaving it unchanged since July after a run of cuts from a peak of 21 percent. Annual inflation was 6.8 percent as of October 19 and is expected to end the year between 7.1 and 7.6 percent, according to the bank's decision statement. The statement added that the bank takes the announced fiscal parameters as given and that a change in them may require a change in monetary policy.
The monetary warning is the clearest external check on the fiscal plan. A deficit that overshoots by 3.5 trillion rubles in one year, as 2026's did, adds demand to an economy where unemployment is forecast to stay at 2.3 percent, and the central bank has signaled that it would answer with tighter money. High rates in turn depress the investment that the forecast relies on. The Ministry of Economic Development expects investment growth of only 0.2 percent in 2027, and GDP growth of 1.4 percent, per SIPRI's summary of the government forecast. Accounts Chamber (ACRF; Счётная палата Российской Федерации) chairman Boris Kovalchuk told the Duma on October 29 that the budget's sensitivity to oil prices remains a high risk.
The strongest objection to this reading is that it understates the oil windfall. Brent is more than $40 above the forecast, Urals is nearly $40 above the cut-off. On that view the 2027 plan is deliberately conservative, revenue will beat it, the fund will refill and the tax test described here will never bind. There is real force in this. The ACRF's estimate of revenue shortfall risk for 2027 is only 7.6 billion rubles, according to its conclusion on the bill, and a sustained price shock would ease every constraint at once.
The objection weakens on three counts drawn from the government's own documents. First, the rule is designed to keep the windfall out of the spending base, so even a large surplus over the cut-off finances the fund, not the defense chapter, unless the rule is loosened again, as a 2026 structural deficit of 4.27 trillion rubles shows it was. Second, 2026 itself shows that rising oil prices do not prevent a fiscal overshoot. Urals climbed from $59.02 in July to $92.08 in September, yet the full-year deficit estimate doubled from the law, and the damper diverted a record sum back to refiners. Third, the windfall depends on a supply shock in the Gulf that Moscow does not control. The forecast's own authors priced it as temporary, and the ACRF flagged that its risk estimate rises to 234.9 billion rubles in 2028 as the Urals discount to Brent is assumed to narrow. A budget whose balance hinges on a foreign crisis persisting has not passed a test; it has deferred one.
Over the next six weeks the sequence of events will show which reading holds. The Duma's second reading on November 19 will allocate the 310 billion ruble reserve and settle the tax amendments, and any softening of the passive-income tax or the e-commerce VAT would reduce the non-oil revenue on which the deficit target rests. The CB meets again on December 18. The Ministry of Finance's October execution data, due in early November, will be the first to include September's $92 Urals price, while its December report on the NWF will show whether the liquid portion has started to rise again.
These scenarios follow from those checkpoints. Under favorable conditions, oil stays high into 2027, the rule holds, the fund's liquid cushion rebuilds and the central bank resumes cutting in early 2027, leaving the war budget financed with room to spare. Under less favorable conditions, oil falls back toward the forecast while domestic tax receipts underperform, the deficit again exceeds plan, the liquid fund is drawn down and higher domestic borrowing keeps the key rate near 14 percent, squeezing civilian investment. If fiscal pressure intensifies further, the government responds by suspending the rule or reopening the tax code mid-year, which would show that defense spending had become the fixed point around which every other fiscal variable adjusts.
These implications extend well beyond Moscow's ministries. For governments that rely on sanctions, the arithmetic of the draft suggests that further pressure on oil volumes will matter less to Russian military financing than it did in 2022, while measures affecting import costs, consumer prices and domestic tax capacity bear more directly on the revenue base. For the main buyers of Russian crude, the $50 cut-off means that higher prices paid in 2027 would largely accumulate in a sovereign fund rather than in the current budget. For Russian households and firms, the 2027 budget makes them the main underwriters of a war chapter that consumes more than a third of federal spending, with most of it hidden from view. The first reading passed without a single vote against, but the test that matters will be set at the tax office and the central bank's December meeting.
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DISCLAIMER: This article presents an independent analysis of Russia’s 2027–2029 federal budget based on publicly available information, official documents, and research available at the time of writing. As economic conditions, government policies, and geopolitical developments evolve, subsequent updates and official statements may alter the context or interpretation of the analysis. Fiscal projections, revenue estimates, and scenarios discussed herein are analytical assessments and should not be construed as definitive predictions. This article is intended for informational and analytical purposes only and does not constitute investment advice, a solicitation to buy or sell securities, or portfolio management services. The company, its affiliates, or contributors may hold financial interests in certain securities or markets discussed herein. Readers should conduct their own research or consult a qualified financial adviser before making investment decisions.
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