Russia rules out higher taxes, but budget deficit still far exceeds annual target

(1) The Kremlin made it clear on Wednesday that it does not consider raising taxes, after the Ministry of Finance published preliminary data showing that the budget deficit narrowed to about 5.8 trillion rubles in the first eight months of this year, equivalent to 2.5% of GDP, an improvement from the previous figure of about 6.46 trillion rubles. (2) Nevertheless, the current deficit level is still about 48% higher than the same period last year and about 53% higher than the full-year target. The structural contradiction between military spending and fluctuations in energy revenues remains prominent, and the pressure to balance the budget has not been fundamentally alleviated. (3) The Kremlin spokesperson responded that the deficit level should not cause concern, macroeconomic stability has been fully ensured, and emphasized that the government continues to address economic development issues in its regular meetings with the President. Attention will next focus on whether high energy prices can continue to improve fiscal revenues, as well as whether there is further room to compress expenditures.