Budgets in 65 of Russia’s 85 regions had lower real revenues in 2025 than in 2021, while spending rose in most, deepening fiscal pressure on local authorities.
The figures, reported by the Russian publication Agentstvo on 4 August 2026, show how Vladimir Putin’s full-scale war against Ukraine has weakened the finances of the regions that depend on Moscow and on industries hit by sanctions.
After adjusting for cumulative inflation of 39.05 per cent between 2022 and 2025, revenues were below their 2021 level in 65 regions. At the same time, real spending was higher in 52 regions – more than 60 per cent of the country’s regional governments. The mismatch has driven a rapid widening of budget deficits.
Industry-dependent regions bear the heaviest losses
The sharpest fall in overall real revenue was recorded in Kemerovo region, known as Kuzbass, where it dropped by 39.3 per cent. Vologda region suffered a 34.5 per cent decline and Ingushetia a fall of 30.8 per cent.
Across Russia, revenues fell in 51 regions and rose in 34. The deterioration was driven chiefly by a real reduction of 1.10tn roubles in federal transfers and an 820bn-rouble fall in profit-tax receipts. The decline in transfers was linked to inflation and the completion or redistribution of targeted programmes. The weaker profit-tax take reflected poorer results at major companies, including coal and metals producers.
Profit-tax receipts fell by 16.6 per cent in real terms, with the steepest drop – 78.7 per cent – in Kuzbass. Receipts fell by more than 60 per cent in Belgorod, Kursk, Lipetsk, Vologda, Murmansk and Orenburg regions, as well as in Karelia and Khakassia. In 25 regions, profit-tax revenue in 2025 was below its 2021 level even without adjusting for inflation.
US and EU sanctions introduced in response to the Kremlin’s war have hit the metallurgical, coal, timber and chemical sectors particularly hard. Those industries form an important part of the tax base in many regions, leaving local governments exposed when the financial performance of large companies deteriorates.
Moscow takes a larger share of regional resources
Since the war began, the Kremlin has reorganised Russia’s tax and budget system to channel more resources to the federal centre, where military spending has expanded. The centre increased its share of revenues from highly profitable sources, including mineral-extraction tax and excise duties, and imposed one-off levies on large companies’ excess profits.
That centralisation has redirected a significant share of natural-resource income away from regional budgets and towards defence spending. It has also made the regions more dependent on decisions in Moscow, even as the federal transfers on which they rely have declined in real terms.
Regional authorities have meanwhile been left to meet additional social obligations and other costs associated with the war without equivalent funding. The result is a weaker own-revenue base and greater pressure to use commercial borrowing, adding to regional debt burdens.
Kursk region was the main exception to the wider decline, recording real revenue growth of 87.6 per cent. Magadan region rose by 33.3 per cent, the Moscow region by 23.2 per cent and Tatarstan by 22.5 per cent. Kursk’s increase was largely the result of a sharp rise in federal transfers, particularly money to support residents and restore border territories.
Higher wages mask a broader deterioration
Personal income-tax receipts increased in real terms in every region except Murmansk. The rise followed higher wages amid a labour shortage caused by the war, including the movement of workers into defence production. Russia’s central bank has said wages grew faster than labour productivity between 2023 and 2025.
However, the 483bn-rouble increase in personal income-tax receipts and an 83bn-rouble rise in simplified-tax-system revenue only partly offset the collapse in profit tax. Higher wage costs have also reduced the profitability of civilian businesses, weakening another part of the regional tax base.
The pressure is visible in spending choices. Real healthcare spending fell in 76 of the 85 regions, and in 29 it was below its 2021 level even before inflation was taken into account. Real housing and utilities spending rose in 55 regions, while education spending increased in 74.
According to Russia’s Audit Chamber, 56 regional budgets were running deficits in the first quarter of 2026, compared with 46 a year earlier. With financial reserves being depleted, regional governments face decisions over whether to borrow more or postpone civilian development programmes as the Kremlin continues to prioritise the war economy.
How long can Russia’s regions sustain higher spending while Moscow reduces their financial room for manoeuvre?
