Russia to cut welfare, education funding in 2027 as war spending soars

Two men use a smartphone atop a hill with the city skyline in the background in Moscow, Russia, September 17, 2024. REUTERS/Maxim Shemetov

MOSCOW, Sept 29 - Russia will cut funding for welfare, education and healthcare in next year's state budget, in addition to previously announced tax hikes, to help cover soaring military spending, fiscal documents obtained by Reuters showed.

Russia plans to spend 17.1 trillion roubles ($202.58 billion) on defence in 2027, around 27% more than the 13.5 trillion roubles originally budgeted and the highest figure since the start of the war in Ukraine in 2022.

Funding for social policy, which covers items such as state pensions, payments to war veterans and maternity benefits, will shrink by 7% in 2027. Funding for education will fall by 6% and healthcare funding by 6.8%, compared with the initial plan.

Spending under the "national economy" section, which includes road construction and other infrastructure projects, as well as subsidies for agriculture and other sectors, will shrink by 7.4% in 2027.

Russia's budget situation has gradually deteriorated throughout the 4-1/2 years of war in Ukraine as the country has had to tap its fiscal reserve fund, increase borrowing and raise taxes to keep up with growing military spending.

Russia is drawing up a three-year budget in an attempt to improve long-term planning, but it has had to revise figures sharply upwards each year and has repeatedly missed its annual deficit targets.

The federal budget does not incorporate regional and municipal budgets, which account for a significant share of social spending.

The new tax hikes in the 2027 draft budget, as well as a larger-than-expected increase in utility tariffs planned for next year and announced after this month's parliamentary election, have angered even some Kremlin supporters.

The new State Duma, in which the pro-Kremlin United Russia party will hold a constitutional majority, is expected to approve the new budget, with authorities saying that winning the war in Ukraine takes priority over other needs.

While overall non-military spending is shrinking, the share of debt-servicing costs in the Russian budget is rising due to high interest rates, which the central bank maintains to fight inflation, and increased borrowing plans.

The documents show that debt-servicing costs will rise by 21.6% in 2027 compared with the initial plan, reaching 9.4% of total spending in 2027 and increasing further to 10.6% in 2029. REUTERS