Military spending will remain a priority in budget preparations for the next three years, Russian President Vladimir Putin announced on Monday.

At a meeting with deputies of the VIII State Duma, which concluded on July 27, Putin accused the West of unleashing a "Russophobic machine" and setting "world records" in sanctions, and said that "no one will ever" succeed in "breaking the people of Russia."

"Our political system and institutions of power are formed on sovereign principles in full compliance with the Constitution of the Russian Federation and are ready to defend the country, capable, together with society, of decisively repelling any hostile moves," Putin stated. In addition to "strengthening the country's defense," he said, the priority for the 2027-2029 budget should be "resolving urgent social issues."

In the 2026 budget law, the government initially budgeted 12.9 trillion rubles for "national defense." However, in June, sources familiar with the situation told Bloomberg that the military budget will actually exceed the target by 4-5 trillion rubles. According to them, to cover all war expenses, the Ministry of Finance is preparing to sequester civilian budget items and intends to borrow 2-3 trillion rubles in additional debt.

Actual budget expenditures on the war with Ukraine have already reached 5.9 trillion rubles in the first quarter, according to Janis Kluge, a research fellow at the German Institute for International Security Studies, based on Ministry of Finance data. Compared to the same period last year, military and weapons production spending increased by 29.9%, by 68.7% compared to January-March 2024, by 129% compared to 2023, and by 4.6 times compared to the first quarter of 2022.

According to his calculations, the cumulative total since 2022, the war with Ukraine has cost Russian taxpayers 53.079 trillion rubles, or $746.6 billion. This amount covers 28 years of current budget expenditures on healthcare, 30 years of education expenditures, and 100 annual budgets of large regions, such as Krasnoyarsk Krai and Sverdlovsk Oblast.

The priority of defense and security in the budget forces the authorities to "take a more selective approach" to funding other areas, according to leading expert Emil Ablaev of the Center for Macroeconomic Analysis and Short-Term Forecasting. At the same time, resources for filling the budget through a permanent increase in the tax burden are shrinking, he notes.

Last year, despite increases in the profit tax and recycling fee, budget revenues were 3 trillion rubles below plan, and this year, the problems have "intensified," Ablaev notes: the Ministry of Finance raised VAT to 22%, but the deficit by the end of the first half of the year already reached almost 6 trillion rubles. By the end of the year, the "hole" in the treasury could increase to 7 trillion, the expert predicts.