On the financial abyss in Russia, the revolution of fiscal disobedience and karma

The beginning of last week in Russia began with a fiscal cold shower. The so-called Russian newspaper Izvestia reported that the Russian budget may not receive 1 trillion rubles in income tax revenues.

These are rather conservative estimates, as they take into account the expectation that the decline in income tax collection would decrease by the end of the year, which is not happening. Let me remind you that the decline in income tax collection is very bad news for the regions of the Russian Federation.

A day later, the Russian Ministry of Finance "pleased" them with the news that oil and gas budget revenues had fallen by 20.2% over eight months. Of course, these statistics do not yet include the effect of Trump's attack on India, which has already been given a condition: either to refuse Russian oil or to bear the increased US duties.

India has chronic problems with its trade balance, so the result will not be long in coming, but we will see it in November.

As a result of the first two news, the Russian Ministry of Finance pleased Ukrainians with another news item – the growth of the Russian budget deficit over eight months amounted to 4.2 trillion rubles. This is roughly the payroll of the Russian army for the year.

In 8 months, revenues grew by only 3% (less than the official inflation rate), while expenditures grew by as much as 21%. The projected total size of the gap in 2025 is from 8 trillion rubles.

Putin's loyalists were not deterred by this deficit, and began discussing raising VAT from 20 to 22%, increasing government borrowing, and accelerating privatization.

However, the issue of the budget deficit, which is growing exponentially, also has a shadow side. The unwillingness of the population to pay taxes is behind the failure to fulfill tax collection plans in Russia.

In particular, people and businesses are affected by two trends: 1) most people realize that Russia could have done without this war, so if tax increases are a consequence of the war, why pay them? 2) the strong cooling of the Russian economy outside the defense sector is very much felt. Therefore, against the background of declining real incomes, it is not a good idea to give even more to the state for unclear purposes.

Therefore, the number and volume of acts of fiscal disobedience are growing, and this is a kind of fiscal revolution.

And then the CBR woke up (how could it not). And the CBR is concerned that Russians are paying more in cash. Last week, the CBR recommended that banks step up monitoring of cash ruble transactions. Poor execution of the tax plan has led to an increase in the budget deficit, which puts pressure on inflation, which forces the CBR to maintain high interest rates, which forces the Rostec group to "snub" the CBR. This is a dog's wedding.

I predict that the CBR will not be able to do anything drastic here, as over the past few years, Russian businesses have been systematically trained through sanctions to hide payments from "mean unfriendly countries" in crypto, digital (and other) gold, and even Hungarian forints. And now this trained business will successfully hide its finances from the Russian fiscal authorities.

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