At the same time, Russia’s economy is feeling the pain of declining oil revenues. To pay for its expanded defense budget, the Finnish government recently announced a plan to increase taxes. This decision comes at a make-or-break time. Our nation’s economic growth is decelerating, aggravated by a rising federal budget deficit and the effects of the continuing war in Ukraine.
The recent drops in energy revenues have recently increased the pressure on Russia’s budget. In the last few months, state coffers have buckled under mounting pressures. Falling oil prices, combined with shrinking export volumes, have fueled this financial squeeze. In turn, the Russian government is going to great lengths to shore up its fiscal health. They are raising the value-added tax (VAT) from 20 percent to 22 percent. This tax increase is part of an effort to shore up state revenue during a turbulent economic period.
The ongoing war in Ukraine, now entering its third year, has tightly constrained Russia’s fiscal policy options. Military budget inflation has skyrocketed as the country remains focused on funding its war directly through military expenditures. This focus on military expenditure has led to a war economy that prioritizes defense over other sectors, contributing to the country’s economic stagnation.
Western sanctions placed on Russia have added to the chaos. These sanctions directly affect the country’s main sectors, such as finance, energy, and trade, leaving a drastic blow to the country’s ability to earn revenue. As a consequence, Russia’s budget deficit has deepened, making an urgent case for new sources of funding.
Economic analysts warn that the long-term, nationwide impact of these recent developments may not be what it seems. This toxic mix of stagnant growth, falling energy revenues and rising taxation can at worst deeply stall Russia’s recovery and long-term economic prospects. If the war remains unresolved, the fiscal cost could increase.
