Budgetary Scissors: Regional budget spending is rising amid stagnant revenues, and regions are expecting ‘lean times’ as early as next year

Regional budget gap

In September this year, the Ministry of Finance's consolidated data on the budgets of Russian regions showed a deficit of 118 billion roubles, with 56 regions in deficit. The notable point was not the size of the deficit, which was relatively small, but the fact that in September 2024 the aggregated regional budgets had shown a surplus of 1.25 trillion roubles. Analysts sounded the alarm and the media reported that some regions had reduced bonuses for signing military contracts, interpreting this as another sign of financial stress.

As for the reduction in bonuses, it does not indicate a new trend. As previously noted, the possibility of signing a contract in any region, not only one’s own, has created a specific model of commercial recruitment for the war. A group of regions stand out for offering the highest one off regional payments, and it is in these regions that most contracts are signed (→ Re:Russia: The Crisis of Effective Contracts). The average regional payment across the 24 leading regions can be taken as an 'effective bonus', that is the price at which the Kremlin succeeds in attracting enough contract soldiers. According to Re: Russia’s calculations based on data from Gogov.ru, the effective regional bonus was 2.195 million roubles in October 2025 and 2.308 million roubles in November, meaning that the effective contract price rose by 113,000 roubles in a single month. Some regions with especially stable finances (Moscow, Moscow Region, St Petersburg, Magadan Region and Khanty-Mansi Autonomous Okrug) remain among the leaders, while others rotate in and out. Having fulfilled their 'quota' they reduce bonuses and are replaced by others. The reduction in bonuses in some regions is therefore routine and not evidence of a new trend.

Meanwhile in October regional budgets again showed a surplus of 570 billion roubles, although this does not indicate an improvement in their financial position. On the contrary, it continued to worsen. Both the September deficit and the October surplus reflect not underlying financial dynamics but rather the timing of transfers from the federal to regional budgets. In September this year transfers were only 4% higher than in September 2024, so consolidated regional budgets showed a deficit. In October they were 15% higher than a year earlier and the balance returned to surplus.

The most important indicator of regional financial health is the ratio of own revenue (before transfers) to total expenditure. The key parameters of regional finances are set out in Table 1. As shown, the deterioration in 2025 is linked to budget scissors. In January to October 2025 regional expenditure grew almost twice as fast year on year as own revenue, at 15% compared with 7%. In 2023 and 2024 regions’ own revenue grew by 15% and 12% respectively, substantially faster than both inflation and expenditure (which rose by 11% in 2023 and 10.6% in 2024). The divergent trends of slowing revenue growth and accelerating spending growth mean that this year own revenue covers only 88% of expenditure, compared with 93 to 94% in previous years. As a result the primary deficit (before transfers) has increased 2.5 times over the year, rising from 993 billion roubles in October 2024 to almost 2.5 trillion in October this year.

Table 1. Structure and dynamics of consolidated regional budgets of the Russian Federation, 2023–2025

Regional revenue is composed of personal income tax receipts, which account for almost 40% of total revenue, income tax, which accounts for 25%, and various property, mineral extraction and other tax and non tax receipts. As shown in Table 1, after a strong rise in income tax receipts in 2023 (5.1 trillion roubles by October compared with 4.2 trillion in October 2022), these receipts fell in 2024 and 2025 and in 2025 almost returned to their 2022 level of 4.4 trillion. In 2024, however, the fall in income tax receipts was more than offset by the impressive growth of personal income tax receipts and other revenue sources. In 2025, more modest growth in personal income tax receipts, driven by slowing wage growth, and in other revenue sources no longer compensates for the continued decline in income tax receipts. Regions’ own revenue rose in nominal terms over the first ten months, but this growth was below inflation, so in real terms it fell by 1%. Over the same period expenditure rose by 7% in real terms.

Acceleration amid slowdown

The fall in income tax receipts is driven mainly by worsening conditions in the extractive, industrial and financial sectors, according to a report by the ratings agency Expert RA. Extractive and raw materials industries are under increasing pressure from sanctions, the loss of markets and declining commodity prices. It is striking for the Russian economy that almost one third of the total fall in income tax has come from several key oil and gas producing regions, namely Tyumen Region, Khanty Mansi Autonomous Okrug and Yamalo Nenets Autonomous Okrug. The contribution of the resource sector to budget sustainability is shrinking not only at the federal level but also at the regional one.

Gas exports have fallen by 40%. Coal exports have been declining since 2021 due to sanctions, high logistics costs and falling global demand. According to estimates by NEFT Research, as reported by Kommersant, in 2025 the coal industry’s revenue will fall by a further 12% because of lower export volumes and prices and will amount to 60% of its 2022 level. The share of loss-making coal enterprises will rise to 70%. As a result, Kemerovo Region has the largest actual budget deficit, meaning the deficit after federal transfers, at minus 43.9 billion roubles. The list of deficit regions also includes Yamalo Nenets Autonomous Okrug, at minus 38 billion, which holdRussia’s main gas reserves, as well as Tyumen Region, at minus 33.8 billion, and Novosibirsk Region, at minus 33.5 billion. Metallurgical companies are also in difficulty after losing access to premium markets and facing tighter global competition (→ Re:Russia: Forward into The Past).

Since early 2025, the dispersion in regional economic performance has been driven by two main factors, according to a review by analysts from the Telegram channel ‘Hard Figures’, namely weakness in export oriented industries and certain large infrastructure and industrial projects. The weakest regions include Murmansk Region, at minus 12.7% in basic economic activities, where extractive industries, particularly metal ores, have a large weight, and Kursk Region, at minus 8.8%, which is also home to significant ore extraction and processing at the Mikhailovsky Mining and Processing Plant. The fastest growing regions include Chukotka, at plus 23.6%, and Amur Region, at plus 17.8%, where major plants are under construction, namely the Baimskoye Mining and Processing Plant and the Amur Gas Chemical Complex.

Manufacturing is in a phase of sharp slowdown. Growth is concentrated mainly in defence related industries. As a result, in regional terms the beneficiaries of defence growth are Kurgan Region, where industrial output grew 23.8% in the first nine months, Tatarstan, at 11.6%, Udmurtia, at 8.3%, and a number of others. In 46 regions industrial output declined over the first nine months. Corporate financial results have worsened for the second consecutive year, according to Rosstat. In January to September this year they fell by an average of 8% compared with the previous year. In a few regions, however, income tax receipts rose, notably in Kamchatka Territory, Magadan Region, Zabaykalsky Territory and the Republic of Altai. In the first two cases this is related to the abolition of previous tax benefits, and in the latter two to gold mining, since gold prices are rising. These outliers do not change the overall trend.

These trends of industrial slowdown and weaker wage and income growth are unlikely to reverse. Moreover, at the end of the year the negative trend in income tax receipts may intensify due to growing problems with oil exports. Higher tax burdens on business in 2025 to 2026, including higher profit tax and VAT rates, do not benefit regional budgets but will further worsen corporate finances.

However, the main problem for regional budgets is not stagnating own revenue but rising expenditure. In January to October 2025 regional spending was 2.4 trillion roubles higher than a year earlier. The ‘Main Guidelines of Budget Policy for 2025–2027’ envisaged proportional growth of regions’ own revenue and expenditure at about 6% a year. In reality the growth of expenditure was 2.5 times higher. According to ACRA, tmost of the increase in spending occurred in the categories 'social policy' and 'national economy', both of which grew by 21%, equivalent to increases of 659 billion and 608 billion roubles respectively over the first nine months, and in 'education', which grew by 13% or 400 billion roubles. Ilya Sokolov from the Gaidar Institute attributes the rise in 'national economy' spending to faster growth in fuel and utilities prices and interest rates, which has increased the burden on regional budgets that fund infrastructure.

Regional economics expert Natalya Zubarevich notes that within 'social policy' most of the increase is in 'social security' and that 'these payments are closely related to the special military operation and its consequences'. These include regional payments for injury and death and other support measures for servicemen. In addition, our calculations suggest that in the leading regions the signing bonus paid for a military contract in October 2025 was 500,000 to 600,000 roubles higher than a year earlier. Dmitry Medvedev claimed in mid-October that 340,000 contracts had been signed since the start of the year. This implies that total regional expenditure on this item may have increased by 170 to 200 billion roubles.

Finally, analysts link part of the regions' additional expenditure to unplanned ‘emergency’ spending in border regions. This primarily applies to the Kursk region, part of which was controlled by Ukrainian forces from August 2024 to April 2025. Regional budget expenditure there has doubled, reaching 179.8 billion roubles in the first nine months of this year, compared to 89.9 billion spent last year.

Expenditures without revenues: the new reality

As noted above, consolidated regional budgets posted a surplus over the first ten months thanks to federal transfers. However, of the 3.4 trillion roubles earmarked in the 2025 federal budget for transfers, 3.05 trillion, or 90%, has already been used. The October surplus is almost three times smaller than the October surpluses recorded over the previous three years, which averaged 1.58 trillion. November and December traditionally account for 30% of annual spending as many contracts are closed at year end. Over the same two months, regional revenue has historically accounted for 20% of the annual total, according to Finance Ministry data.

If these proportions hold in 2025, total regional expenditure will reach 28.9 trillion roubles, compared with the 25.4 trillion set out in the 'Main Guidelines'. Regions’ own revenue will amount to 22.2 trillion, and the gap between own revenue and spending will reach 6.7 trillion, as shown in Table 2.

Table 2. Key indicators of regional finances in October and December 2022–2025, trillion roubles

As we can see, the gap between regions’ own revenue and their spending needs is widening sharply. Between 2022 and 2024 it averaged 4 trillion roubles, and in 2025 it has increased by 50%. At the same time the planned volume of transfers this year is lower than in the previous three years, when they averaged 3.9 trillion. As a result the gap between revenue and expenditure, even after transfers, may reach 2.9 trillion. In practice, however, regions do have reserves in 2025 to cover part of this gap in the form of unspent balances accumulated on their accounts. According to Expert RA's calculations, these amounted to 1.97 trillion roubles at the end of August, excluding Moscow, which holds a further 1.4 trillion but is not running a deficit. In addition, analysts at Expert RA note that regional budgets contain capital expenditure that is likely to be postponed if liquidity risks continue to rise.

Signs of austerity and fiscal consolidation are already visible in some regions, including in relation to military payments and obligations. In Khakassia bonuses for signing a contract with the Ministry of Defence are being paid with a delay of several months. The regional payment to families of fallen soldiers, previously 1.1 million roubles, has been abolished altogether, according to the publication Abakan 24. Yakutia has also suspended payments to participants in the war and their families, although local officials claim that they have now found the necessary funds. Complaints about the non-payment of signing bonuses and allowances have also been reported in Stavropol, Yugra, Chita and other regions. In some places, such as the Irkutsk region, certain spending lines are being cut. Elsewhere teachers report frozen payments, tax benefits are being withdrawn, or increases in local taxes are being discussed, according to Vedomosti. For now, however, fiscal consolidation is neither widespread nor systematic.

According to the 'Main Directions of Budget Policy', the consolidated regional budget should be close to balanced once federal transfers are taken into account. More recent forecasts from the Ministry of Finance already acknowledge that the deficit will be at least 300 billion roubles by year end. More pessimistic assessments point to a deficit of 500 to 800 billion. The reserves accumulated in previous years will soften the problem. Yet, as with the federal budget, the structural issue is that in conditions of ongoing war, the militarisation of the economy and sanctions pressure, expenditure is rising independently of revenue trends (→ Re: Russia: Where Does The Road Paved with Tax Manoeuvres Lead?). As a result Russian regions will enter the new year in a fundamentally different position from that of the past two years.