The Kremlin plans to raise taxes and cut social benefits, while senators and governors will bear the brunt of the criticism, Ukraine's Foreign Intelligence Service has reported.

Source: Foreign Intelligence Service of Ukraine (FISU)

Quote: "Russian authorities are preparing citizens for a further decline in living standards amid a record budget deficit, which in 2025 will reach 5.74 trillion roubles (US$70.7 billion).

To plug the shortfall, the Kremlin plans to raise taxes and cut social benefits, while using senators and governors as 'lightning rods' to absorb most of the criticism."

Details: Official plans include increasing VAT from 20% to 22%, lowering the threshold for the simplified tax regime and revisiting reliefs for the self-employed, who currently pay only 4-6% tax.

The self-employment regime could be scrapped as early as 2026, forcing people either to register as entrepreneurs or to pay the full rate.

Quote: "Meanwhile, officials discuss imposing social contributions on those without formal jobs – the unemployed, freelancers and people working off the books. These moves are packaged as 'social justice' yet in practice increase the burden on households."

More details: The authorities also discuss cutting welfare programmes: federal subsidies for multiple-child families, also known as the "maternity fund", would be paid only for a third child, and family mortgage programmes would be pushed onto regional budgets.

With 68 regions running deficits, local authorities become the first line for unpopular decisions such as higher transport taxes and parking fees.

Quote: "These changes flow from the war. Sanctions over Russian aggression have driven down revenues, and the Kremlin is effectively rewriting its social contract with citizens: what once was 'You do not protest and we guarantee you stability', has now become 'If you support the regime, you have to pay more."

Background:

• The FISU has reported earlier that Russia's economy has entered a protracted downturn: by the third quarter of 2025, businesses faced rising non-payments, falling demand and a shortage of working capital.
• It also has been reported earlier that Russians are giving ever-worse assessments of the country's economic prospects. The current level of pessimism about Russia's economy ranks among the highest in 20 years.
• Urals crude prices have fallen to their lowest since spring, calling budget plans in Moscow and Minsk into question.
• The Ukraine's Foreign Intelligence Service has also reported that Russia is increasingly "paying" its wartime allies with territory. Lacking the resources to develop the vast Far Eastern Federal District, Moscow is opening the region to foreign expansion.
• Ukraine's Foreign Intelligence Service has also reported earlier that Russia has trapped itself by increasing defence spending and making the military-industrial complex the main driver of demand.

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