Putin is preparing to privatize state-owned enterprises in order to continue the war; Russia may retrace the old path taken after the collapse of the Soviet Union 30 years ago, and a new batch of oligarchs may rise accordingly?

The Russian Ministry of Finance recently submitted the draft budget for 2026-2028, which includes two policies that have drawn attention: one is tax increases, and the other is the privatization of large state-owned enterprises.

【The Russian Ministry of Finance recently submitted the draft budget for 2026-2028】

Both are aimed at one purpose — increasing government revenue to support the cost of the war.

Let's start with the latter. According to the Russian finance minister Siluanov, a new wave of privatization of state-owned enterprises has actually started this year.

It is expected that by the end of 2025, the Russian government will obtain more than 100 billion rubles in additional income through several privatizations.

The latest draft shows that next year, Russia will also carry out the privatization of at least seven large state-owned enterprises, and the budget revenue from selling shares could reach between 100 and 300 billion rubles — of course, the Russian government will still "retain control over state-owned enterprises of significant strategic importance."

【Two policies have drawn attention: one is tax increases, and the other is the privatization of large state-owned enterprises】

In fact, in recent years, the Ukrainian government also sold many state-owned enterprises to support military expenses — Ukraine set a goal to sell most unprofitable, non-core state-owned enterprises, keeping control of only 100 companies.

Same logic applies here. Now, with a lack of funds, Russia has no choice but to sell state-owned enterprises.

Russia is not the first time to face such a crossroads. During the Yeltsin era after the collapse of the Soviet Union in the 1990s, the privatization of state-owned enterprises in Russia was almost a "massive sale of state assets," which resulted in the emergence of a large number of oligarchs.

These oligarchs controlled key resources such as oil, natural gas, and minerals, becoming important players in Russian politics and economy. After Putin came to power, it took him many years to deal with them one by one, regaining control of the country's economic lifelines under the Kremlin.

Now history is repeating itself. In wartime conditions, foreign investment is unlikely to enter on a large scale. Selling large state-owned enterprises is likely to produce a new batch of oligarchs, just like in the Yeltsin era.

But there's nothing else to do — oligarchs can be dealt with later, solving the current problem is the key.

On one hand, the Russian military spending snowball is growing bigger and bigger. Last year, it increased by 70%, and this year by another 30%. If the conflict continues into next year, it is likely to increase again.

【Russian military spending snowball is growing bigger and bigger, increasing by 70% last year and another 30% this year】

Moreover, from the current situation, the Ukraine-Russia conflict is unlikely to end by the end of this year. On the battlefield, the Russian summer offensive did not achieve the expected goals; in diplomacy, Trump is increasingly disappointed with Putin and has significantly reduced his enthusiasm for mediation talks.

From Trump's perspective, it is more comfortable to sell weapons to Europe rather than try hard to mediate the Ukraine-Russia conflict. It satisfies European allies and gives Mags something to talk about.

On the other hand, this year's energy prices, especially the continuous decline in crude oil prices, have further reduced Russia's already diminished foreign exchange income. Last year, Urals crude oil was around $68, and this year, the Russian government has lowered its forecast to $56 per barrel.

According to past experience, actual prices are often even lower than the figures planned in the Russian government's budget drafts.

【This year, the Russian government has lowered its forecast to $56 per barrel of Urals crude oil】

Declining energy revenues are bad, but even worse is that, in order to curb inflation, Russia has adopted a contractionary fiscal policy since this year, leading to a rapid slowdown in GDP growth — Russia's GDP growth was 4.1% last year, and only 1.2% in the first half of this year.

Under unavoidable economic downturn, maintaining the war is not enough just by selling state-owned enterprises, so the Kremlin has to take its final fiscal "big move" — tax increases.

This tax increase is divided into two parts: vertically, increasing the value-added tax rate from the current 20% to 22%; horizontally, expanding the scope of value-added tax taxpayers and adding new taxes.

Value-added tax is a key source of revenue for the Russian government. In 2024, value-added tax accounted for nearly 37% of federal government revenue, i.e., 13.5 trillion rubles. The Kremlin last raised the value-added tax in 2019, increasing it from 18% to 20%. According to calculations, a 2-point increase in value-added tax can bring an additional annual budget revenue of approximately 0.5% of GDP, i.e., 1 trillion rubles per year.

【Value-added tax is a key source of revenue for the Russian government】

Putin knows that increasing taxes is a sensitive issue. Last week, he convened leaders of various parties in the State Duma at the Kremlin to discuss the issue of tax increases and explain the rationale. He said:

"I don't want to politicize this matter, but I must point out that during the Vietnam War and the Korean War, the United States also imposed higher taxes on high-income groups."

Putin also promised that after this year's tax rate increase, the Russian government will not make any major changes to the tax system before 2030 — it seems that Putin is really taking a gamble; unless he goes back on his word, Russia won't be able to implement large-scale tax increases for the next five years.

In a way, this 2026–2028 budget draft is not just an economic document, but also a political declaration. Through this document, Putin is telling the outside world that Russia is ready to continue fighting a prolonged war, even if it means sacrificing part of its state assets and increasing the tax burden, he will maintain the operation of the war machine.

There is no doubt that this is a strategic gamble: if it fails, it will not only lead to a more severe financial crisis, but could also escalate into a more serious political turmoil.

Original: https://www.toutiao.com/article/7553835986984174119/

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