Is the facade of the mighty Russian bear cracking? While the war machine continues to run unabated, signs of an impending economic crisis are multiplying within the country. Even high-ranking government officials are sounding the alarm, and now the Russian people are being asked to foot the bill to plug the gigantic holes in the state budget.

Tax hammer to fill the war chest

The Kremlin is resorting to drastic measures to cover the enormous costs of the war. As reported by oe24, the government is planning a significant increase in VAT from 20 to 22 percent. But that’s not all: even smaller companies, which have been spared until now, will be asked to pay up in the future. This move comes as a surprise, as Kremlin leader Putin had promised in 2024 not to touch taxes until 2030.

The Ministry of Finance openly admits that the money is needed for “defense and security.” By August alone, the budget deficit had reached a staggering 43 billion euros. The war is becoming an increasingly expensive burden for Russia.

The war is consuming the economy and resources

The costs of the war are difficult to quantify. Officially, around 135 billion euros will be spent on defense and internal security this year – that is about 40 percent of total government spending. But the true costs are much higher. Western sanctions are forcing Russia to fall behind technologically, while Ukrainian attacks are hitting the vital oil industry hard.

Dozens of refineries in the European part of Russia have already been attacked and have had to suspend operations, in some cases for months. As a result, gasoline is becoming scarce in Russia. According to oe24, Deputy Prime Minister Alexander Novak even had to extend an export ban on gasoline and diesel to secure domestic supplies.

Trump calls Russia a “paper tiger”

Even US President Donald Trump, who is otherwise considered close to Putin, is finding clear words. After a meeting with Ukrainian President Volodymyr Zelensky, he described Russia as a “paper tiger.” On his Truth Social platform, he wrote that Vladimir Putin and Russia were in “great economic trouble.” This unexpectedly sharp rhetoric could, if followed by action, further increase pressure on Moscow.

What comes after the war?

An end to the war would ease the pressure of sanctions, but it could trigger a new crisis. Currently, the arms industry is the only engine keeping Russia’s economic growth alive. It accounts for eight percent of gross domestic product.

A transition to a peacetime economy would mean a massive slump. At the same time, the question arises as to what will happen to the hundreds of thousands of soldiers returning from the front. Experts warn of a dramatic rise in unemployment and social unrest. For Putin, the situation is becoming increasingly precarious – both at the front and at home.

Sources: oe24.at
Credits: APA