Soldiers over schools: Pensions, teachers, and the environment take the hit as war spending soars in Russia’s new state budget

RU

In 2025, Russian spending under the “National Defense” line will increase yet again — this time by 22%, while the federal budget's total spending will rise only by 5%. This means that at least one in three rubles will be allocated directly to waging war, with even more money going to war-related expenses like financing Russian-occupied territories in Ukraine. After factoring in “National Security” — outlays for the police, prosecutors, and investigators who uphold the Putin regime by carrying out repressive measures against the Kremlin’s domestic opponents — defense and security spending comes to account for more than 40% of the state budget.

Of course, all of this money must come from somewhere, and the Russian government’s reduced spending in other areas effectively passes the cost of the Ukraine invasion onto the country’s citizens. Russians will bear the financial burden not only through taxes, but also through the public services they forgo — such as repairs to roads, hospitals, and central heating systems. The cuts are seen across nearly every “civil” category of the budget.

Tanks over pensions

When presenting the 2025 budget, Russian Prime Minister Mikhail Mishustin stressed that the country’s citizens were guaranteed the fulfillment of “all social obligations.” This is almost true, so long as one does not recall the fact that the government has deftly reduced the number of citizens to whom these obligations apply. Overall spending on “Social Policy” will drop by more than 15%, from 7.7 trillion rubles to 6.5 trillion. As the ever-eroding exchange value of the Russian currency approaches a rate of 100 rubles per dollar, this represents a decline from approximately $77 billion to $65 billion.

The sizable cutback directly follows from the widely unpopular 2018 reform that raised Russia’s retirement age. For years, the Russian Pension Fund has operated in the red: pension payments require more funding than can be raised from employer contributions. The deficit is covered by the federal budget. This year, the authorities decided to “optimize” this transfer payment, resulting in a 25% reduction — nearly 1.5 trillion rubles — compared to 2024. Additionally, with the gradual rise in the retirement age and adjustments intended to make the transition smoother, no one in Russia will reach retirement in 2025. On top of this, recent tax reforms have removed certain benefits that previously allowed companies to pay lower insurance contributions. The increase in contributions has also been supported by a strong labor market, which has led to rising wages and, in turn, boosted pension fund revenues.

However, the money saved from the pension fund transfer is not being redistributed to other social spending categories, most of which will see only nominal growth after inflation is factored in. For example, “providing government support for persons with disabilities” will see a 10% increase — which barely exceeds the officially reported level of inflation — even as the war continues to multiply the number of citizens in need of such services. Meanwhile, incentive payments for childbirth and social benefits for orphans will be reduced outright.

Healthcare is the only social spending category set to grow faster than inflation — rising by 15% to 1.8 trillion rubles, though this is still modest compared to Russia’s military spending. The increase comes in part thanks to President Vladimir Putin’s “pre-election” pledge to direct additional revenue towards “social goals” and has been made possible by recent tax hikes.

“Patriotism” over education

But presidential promises won’t cover everything. For example, the federal budget’s “Education” line will grow by far less than inflation — just 2%, to a total of 1.6 trillion rubles. Spending on the main state “Education Development” program will drop by 11% next year, and spending on the implementation of modern technologies and methods in schools and preschools will be nearly halved — from 222 billion to 113 billion. The state will also cut funding for children's “recreation and wellness” programs, reducing spending on this federal project fourfold, to a modest 16 billion rubles.

The economized funds will still go to “educational” purposes, albeit those that prioritize ideological inculcation. In 2025, Russia will launch a new national project announced by Vladimir Putin: “Youth and Children,” with an initial allocation of 370 billion rubles. Among the project’s priorities, Deputy Prime Minister Tatyana Golikova highlighted “promoting traditional spiritual and moral values” — including through creating educational content, developing and supporting mentoring programs, and “involving heroes and soldiers of the Special Military Operation in educational activities.”

Occupied territories over Russian regions

In the 2025 Russian budget, two expenditure items appear to have increased at a higher rate than military spending. The first is housing and communal services (HCS), with outlays nearly doubling from 880 billion to 1.8 trillion rubles. One might assume that, following last winter’s multiple infrastructure failures, which left thousands without heat or light for days, the authorities have decided to prioritize HCS — but this is not the case.

The “Housing and Communal Services” line includes federal budget spending on subsidized mortgages. Although the government has wound down the mass program that allowed almost any Russian to take a mortgage at far below-market rates, the state will still pay for this measure for many years to come. As long as program participants repay their loans, many of which have a term of 30 years,, they will retain reduced rates, and the federal budget will continue covering the difference. Several special programs are also set to continue, allowing families with multiple children, workers in the IT sector, and residents of the country’s Far East to secure mortgages at a discount. In 2025, the federal budget will allocate close to 1.4 trillion rubles towards bank subsidies for these programs, accounting for almost 80% of overall HCS spending.

Two budget allocations highlight the state of HCS funding. First, the “Territorial Development Fund,” a state entity responsible for distributing budget funds for HCS repairs, is set to receive 46.7 billion rubles for infrastructure upgrades. Second, this organization will be granted an additional 40 billion rubles specifically towards HCS expenditures in the annexed and occupied areas of Ukraine — nearly matching the amount designated for HCS across all internationally recognized Russian territories.

A total of 940 billion rubles is planned over the next three years for the “recovery and socio-economic development of the occupied DPR, LPR, Zaporizhzhia, and Kherson” regions of Ukraine. Another 300 billion rubles will be allocated for Crimea and Sevastopol, which have been under Russian occupation since 2014. Combined, this is seven times more than the funds earmarked for developing the entire Far Eastern Federal District and thirty times more than for the North Caucasus. Overall, federal budget transfers to Russia’s regions will drop by about 100 billion rubles, or around 6%, in 2025.

Supporting car manufacturers over the environment

The second social category showing an apparent increase in spending is “Environmental Protection.” Formally, environmental spending, like that for HCS, will nearly double, from 477.5 billion to 914 billion rubles. But almost all of this increase will go toward subsidies for Russian car manufacturers, which will more than double — to nearly 819 billion, making up almost 90% of all “environmental” expenditures. These subsidies effectively shield domestic factories from foreign competition, as the budget compensates them for recycling fees, allowing them to reduce the price of domestically assembled vehicles. Importers, who pay the fees without receiving compensation, pass them on to the buyers of foreign-made cars.

Meanwhile, spending under the “Environment” line truly reflective of its name will decrease. In 2024, Russia’s “Ecology” project received 78 billion rubles. In 2025, it will be replaced by the new “Environmental Well-Being” national project, with funding reduced to around 49 billion rubles.

These gradual declines and missed opportunities are changes that Russian citizens are unlikely to notice, as people seldom consider absent benefits. Targeted improvements, on the other hand, have been made clearly visible. This is nothing less than a calculated political decision, enabling war spending — unpopular in surveys — to take priority over social development while maintaining a facade of overall well-being.