Russia may revisit limits of budget rule to enable higher spending

Russia's finances will not be able to cope with increased expenditure unless the current parameters of its budget rule are adapted, a step the government plans to discuss, Economy Minister Maxim Reshetnikov said on Friday.

Faced with a budget hole of US$42 billion (about RM193.8 billion) so far this year, Russian officials acknowledged on Thursday the need for more efficient budget spending, but clashed over the prudence of further increases in the tax burden.

Speaking at an event on the fringes of Russia's flagship economic forum in St Petersburg, Reshetnikov rekindled the debate, saying that spending cuts were the government's first option to finance the state's growing needs.

"Obviously, the second source we will be discussing heavily is again the budget rule," Reshetnikov said. "We will... come back to it because we cannot go further with the parameters we agreed a year, a year-and-a-half ago."

The third option, which Reshetnikov considered a last resort, was raising taxes.

"It is pointless to try to take more from business or the economy than it can afford," Reshetnikov said.

Russia's budget rule, which diverts excess oil revenues into its wealth fund, was suspended in early 2022 as the West imposed sweeping sanctions against Moscow over the conflict in Ukraine.

It was restored in modified form this year, after Finance Minister Anton Siluanov unveiled a new-cut off price of US$62 to US$63 per barrel for the budget rule, but price caps and embargoes on Russian oil have taken effect since.

As military spending soars and sanctions squeeze Russia's energy revenues, Moscow faces a battle to keep its budget deficit in check, with spending cuts, higher taxes and more domestic borrowing among the possible strategies.

"In this year's budget, and (the next three-year budget plan) we will see an increase in expenditure on national defence and security," said German Gref, the chief executive of Sberbank. "There are no particular alternatives here."