1/ Russia has doubled the rate of personal income tax to cover the budget deficits caused by the war in Ukraine. However, as a gloomy Russian commentary notes, it's likely to have dire effects on the economy and the country's already declining demographics. ⬇️
2/ 'Political Report' writes: "In 2025, Russian authorities doubled personal income tax collection at rates exceeding 13%, turning citizens' incomes and savings into one of the fastest-growing sources of budget deficit financing." 3/ "The federal treasury received 763 billion rubles [$9.72 bn], up from 339 billion rubles [$4.32 bn] the previous year. 4/ "This 125% increase means the state is compensating for declining commodity revenues, restricted access to Western capital, and rising expenditures by workers, entrepreneurs, and savers. 5/ "Of the 763 billion rubles, only 331.8 billion rubles [$4.2 bn] came from labor income and individual entrepreneurship. Another 431.3 billion rubles [$5.5 bn], or 57%, came from investment income. Therefore, the entire result cannot be attributed to the five-step scale. 6/ "A significant portion of the increase was driven by interest on deposits and asset transactions. The high Central Bank rate increased the nominal yield on deposits, after which the budget withdrew some of the payments through personal income tax. 7/ "The tax was levied on income, a significant portion of which was eaten away by inflation. A five-tier scale applies to labor income. The 13% rate remains in effect up to 2.4 million rubles [$25,500] per year, after which 15%, 18%, 20%, and 22% are added. 8/ "Formally, the increased tax applies to about 3% of workers. This is politically convenient: the reform can be sold as a confiscation from the rich. The 2.4 million ruble threshold translates into 200,000 rubles [$2,547] per month before tax. 9/ "In major cities and industrial centers, this income is often earned by engineers, private sector doctors, IT specialists, mid-level managers, and small business owners. 10/ "They are considered wealthy, even though housing, healthcare, education, and child support consume a significant portion of their earnings. 11/ "The fixed threshold turns inflation into a hidden tax collector. Salaries rise in line with prices, while real purchasing power may remain unchanged. At the same time, people are subject to a 15% rate without improving their standard of living. No new law is needed. 12/ "The budget automatically receives additional revenue, while taxpayers pay more for nominal growth, which only partially offsets the rise in prices for housing, food, transportation, and services. 13/ "For businesses, this policy creates double pressure. Employers are forced to increase gross salaries to maintain the same net income for valuable employees. If a company fails to do so, it loses employees or reduces their motivation. 14/ "At the same time, personal income tax takes money from customers. Retail, services, construction, food service, and small businesses are more dependent on consumer demand than commodity corporations. 15/ "Every ruble spent on the budget reduces private sector turnover and the future tax base. The demographic price is reflected in family budgets. In 2024, 1.222 million children were born in Russia, the lowest since 1999. 16/ "In the first quarter of 2025, the number of births was 288,800. The personal income tax did not create a demographic crisis, but it does interact with expensive mortgages, high housing costs, and rising childcare costs. Families estimate their income years in advance. 17/ "As the state takes a growing share of income from those still able to buy housing and save, the number of households willing to take on long-term financial commitments declines. 18/ "763 billion rubles covered approximately 13.5% of the federal budget deficit in 2025. This amount is large for individuals and small for the state, whose expenditures reached 42.93 trillion rubles [$546.7 billion]. 19/ "The increased personal income tax did not eliminate the deficit or force the government to reconsider spending. It allowed for the postponement of spending cuts, reducing pressure on reserves and domestic debt. The cost is passed on to household incomes. 20/ "This tax rate provides the treasury with a quick cash flow, but undermines the sources of future growth. The wider the circle of taxpayers, the less money families have, the weaker consumption, the more expensive it is for businesses to retain specialists, and the greater… 21/ …the incentive to resort to informal payments. The state is plugging today's budget hole with tomorrow's tax base. The deficit is financed by citizens' ability to consume less, invest less, and more often forego having children." /end Source: t.me