Russia's Regions Spent Ahead of Their Income: Anatomy of the First Interim Budget Deficit Since 2013

On Oct 1, 2025, Kommersant published an analysis by the rating agency ACRA (AKRA) of Federal Treasury data on the execution of regional budgets in the first seven months of the year, and the picture it drew broke a pattern that had held for more than a decade. For the first time since 2013, the subjects of Russia closed an interim period — the seven months to the beginning of August — with an aggregate deficit of 0.2 trillion roubles across their non-consolidated budgets. Revenues kept growing; spending simply grew faster. The gap between the two ledgers is now the most telling single indicator of how the regional economy of 2025 actually feels, and of where the fiscal pressure of a high-rate year is landing.

Taken in isolation, 0.2 trillion roubles is not a dramatic sum for an economy of this size. Taken in context, it is a marker. Regional budgets in Russia are designed to be conservative: borrowing limits are set by the Budget Code, deficits above agreed levels require federal approval, and most subjects traditionally accumulate a cushion through the first three quarters before concentrating spending in December. An interim deficit in August therefore says less about a single bad month than about the combined pressure of a slowing revenue base and an expenditure programme that cannot be paused.

A deficit that breaks a twelve-year pattern

ACRA built its estimate on Treasury reporting for non-consolidated budgets — that is, the budgets of the subjects themselves, without the municipal layer — and applied two deliberate exclusions. Moscow was left out because the sheer scale of its budget distorts regional averages and can mask the trends forming in the rest of the country; the new regions were left out because complete retrospective series for them do not yet exist. What remains is a clean cross-section of how ordinary regional finances behaved in 2025.

The agency's analysts had to reach back twelve years for a comparable reading: the last time the regions stood in aggregate deficit at the start of August was 2013. The interim shortfall, ACRA warned, "can become a marker that the aggregate deficit of regional budgets by the end of the current year may form larger than the result of 2024". The federal government's own expectation points the same way: the Ministry of Finance projects the combined deficit of regional budgets in 2025 at roughly 13% of their tax and non-tax revenues. Neither number describes a collapse; both describe a system operating with a thinner margin than it has been used to for a decade.

Two tax engines pulling in opposite directions

Regional revenues in January–July reached 9.3 trillion roubles, 4% more than in the same seven months of 2024. On paper that is growth. In structure it is a tug of war between the two taxes that form the backbone of every regional budget — the personal income tax, which rides on wages, and the corporate profit tax, which rides on company margins. In 2025 the first engine is still pulling, but with less force; the second has been running in reverse for two years.

Personal income tax: growth with the handbrake on

The personal income tax delivered 2.4 trillion roubles in the seven months, 14% more than a year earlier, and remained the main driver of revenue growth. The important detail is the deceleration: in the comparable period of 2024 the same tax had grown by 27%. The labour market that fed that growth — record-low unemployment and double-digit nominal wage increases — cooled through 2025, and the tax line cooled with it. A base that grows at half of last year's pace is still a growing base, but it no longer covers the expenditure programme that regions committed to when the labour market was hot.

Corporate profit tax: a second year of erosion

The corporate profit tax, the second pillar of regional revenues, collected 2.1 trillion roubles, 9% less than by the beginning of August 2024. The decline is not new: a year earlier the same date showed a 15% drop, which means the tax has now contracted for two consecutive years. Profit is the most cyclical base in the regional revenue mix — it reacts to borrowing costs, to commodity prices and to demand with a lag — and 2025 supplied all three pressures at once: expensive credit, softer prices in parts of the extractive complex and a more cautious consumer. For regional finance officers the profit line is the one variable they cannot influence and cannot reliably forecast.

The 2025 tax settings as backdrop

Both lines of the revenue story also carry the imprint of the tax changes that took effect on Jan 1, 2025. The personal income tax switched to a progressive scale with rates from 13% to 22% for higher earners, which mechanically supports collections in a year of wage growth but also makes the line more sensitive to any cooling at the top of the pay distribution. The corporate profit tax rate rose from 20% to 25%, with a larger share of the take redirected to the federal budget — a redistribution that cushions the centre in a difficult year and leaves the subjects watching their own share of a shrinking base. None of this turns the interim deficit into a story about legislation; the deficit is a story about the economy. But the 2025 settings explain why the two engines responded so differently to the same macroeconomic weather.

Where the profit-tax hole is deepest

The geography of the shortfall is not random. In absolute terms the largest losses landed in the oil-and-gas subjects, whose budgets are most exposed to the margins of extraction and refining. In relative terms the deepest falls appeared in regions where a single commodity or a single group of enterprises dominates the tax base.

• Tyumen Oblast — 30 billion roubles of profit tax not collected against the seven-month figure of 2024, the largest absolute loss in the country.
• Khanty-Mansi Autonomous Okrug and Yamalo-Nenets Autonomous Okrug — 17 billion roubles each, the two Arctic oil-and-gas autonomies that sit inside the Tyumen matrix.
• Komi Republic — minus 49% in relative terms, the steepest proportional fall among all subjects.
• Orenburg Oblast — minus 40%, a mixed oil, gas and metals base contracting on several fronts at once.
• Ingushetia — minus 37%, a reminder that the profit-tax squeeze reaches far beyond the extractive map.

Read together, the two lists describe a divergence that will shape regional policy for years. Wage-driven regions — those whose budgets lean on the personal income tax — entered 2025 with a slowing but positive engine. Profit-driven regions — those whose budgets lean on extractive and industrial margins — entered it with an engine in reverse. The aggregate deficit of 0.2 trillion roubles is, in essence, the arithmetic of that divergence.

The spending side: obligations that cannot wait

If the revenue story is one of deceleration, the spending story is one of acceleration. Regional expenditure as of Aug 1, 2025 reached 9.5 trillion roubles, 13% above the same date of the previous year. The structure of the increase shows where the money went: social policy added 24% year on year, the national economy line and healthcare added 15% each, and education added 9%. These are not discretionary programmes that a finance ministry can pause for a quarter; they are salaries, benefits, medical supplies, road works and school maintenance.

Social policy leads the increase

The 24% jump in social policy spending is the single largest contributor to the 13% expenditure growth, and it is also the least compressible line in any regional budget: indexed benefits, support payments and social services do not shrink because the profit tax does. Healthcare and the national economy line — roads, transport, support for municipal utilities and local industry — each added 15%, reflecting both indexation and the continuation of multi-year infrastructure programmes that were contracted in cheaper-money years.

The national economy line deserves separate attention: behind it stand not abstract injections but very tangible contracts — road construction, public transport, subsidies to municipal utilities and support for local industrial sites. It is these programmes, contracted in 2023–2024 at a softer cost of money, that keep generating payments in 2025 regardless of how the tax environment turns out. Breaking such a contract costs more than seeing it through, which is why the spending curve is rigid from below: it remembers decisions taken in a different economic climate.

The increase was broad as well as deep: 74 subjects recorded higher spending than a year earlier. The extremes illustrate the range of pressures. Kursk Oblast, a frontline border region carrying additional security, shelter and recovery outlays, raised spending by 151%. Samara Oblast, an industrial and logistics hub, added 33%. The Jewish Autonomous Oblast, one of the smallest budgets in the country, added 32%. When three quarters of the map spends more while the profit tax shrinks, the interim deficit stops being an accounting curiosity and becomes the normal state of affairs for 2025.

How to read the numbers without overreading them

Three methodological cautions keep the picture honest. First, the deficit is measured on non-consolidated budgets, so municipal finances — which often carry their own strain — are not in the 0.2 trillion rouble figure at all. Second, the exclusion of Moscow means the aggregate describes the median regional experience rather than the national total; including the capital would flatter the average. Third, interim execution is seasonal: Russian regions historically concentrate a large share of annual spending in the final quarter, so the August reading is a snapshot of a curve that steepens in December. The value of the ACRA exercise is not the level of the deficit but the direction of the two lines that produce it.

Donors, recipients and the quiet re-ranking

Every year of fiscal stress redraws the informal map of donors and recipients. A subject whose profit tax collapses by half does not stop being a donor on paper, but its contribution to the equalization system shrinks, and its own claim on federal support grows. Conversely, regions with diversified wage-driven bases and modest social obligations find their relative position improving without any decision of their own. The seven-month data of 2025 suggests that this quiet re-ranking is under way: the deepest profit-tax falls sit in historically strong commodity budgets, while several mid-sized industrial and service regions post revenue growth close to the national average.

The practical meaning of this re-ranking is simple: companies choosing a site for a new plant or warehouse increasingly look not only at incentives and infrastructure but also at the resilience of the subject's revenue base. A region where half of the budget rests on the profit of a single combine is a region with high dispersion in future decisions about taxes, tariffs and support. A region with a broad wage base and diversified small business offers a predictability that in 2025 can be called an investment asset in its own right.

Three instruments for closing the gap

Technically, a subject finishing the year in deficit has three sources of cover: transfers from the federal budget, infrastructure budget loans and market borrowing, including bond issues and bank credit. Each instrument carries its own price. A transfer does not have to be repaid, but it arrives with earmarked conditions and with a negotiating position weaker than a donor's. An infrastructure loan is cheap and long, yet tied to a project and to a schedule that is hard to move. Market debt is flexible, but in a high-rate year it is expensive, and servicing it eats future budgets. Choosing the mix is what regional budget policy in 2025 really is: less a debate about priorities than a calculation of which of the three instruments ties tomorrow's hands the least.

What the gap means for fiscal federalism

A persistent gap between regional revenues and regional obligations is, ultimately, a question about the centre. The mix a subject chooses among transfers, infrastructure loans and market debt determines how much freedom it keeps over its own development programme — and in a year when the gap is this wide, the mix is largely set in Moscow. A year in which 74 regions spend ahead of income is a year in which the federal centre's allocation decisions carry unusual weight — and a year in which the ranking of donors and recipients can quietly shift.

1. The full-year deficit against 2024 — ACRA's explicit marker: if the aggregate ends the year larger than last year's, the 2013 precedent becomes the new reference point.
2. The profit-tax line in the fourth quarter — the most cyclical component of regional revenue and the first place a recovery or a deeper squeeze will show.
3. The pace of personal income tax growth — the wage engine's deceleration from 27% to 14% is the clearest fiscal echo of a cooling labour market.
4. The December execution spike — how much of the annual programme regions still have to spend will define the final deficit.
5. Federal transfer and loan decisions — the volume and conditions of support will show whether the centre treats 2025 as an exception or as the new baseline.

The main business conclusion

For companies, contractors and investors, the interim deficit of 2025 is best read as a redistribution signal rather than a distress signal. Regions whose revenues lean on wages enter the budget negotiations of 2026 with a slower but intact engine; regions whose revenues lean on corporate profit enter them with a hole that no local decision can fill. Procurement programmes, infrastructure plans and social commitments will increasingly be priced against that split. The seven-month reading published on Oct 1, 2025 does not predict a crisis; it predicts a harder conversation about who pays for the regional state — and that conversation, unlike the deficit itself, has only just begun.

There is also a second, quieter conclusion: the interim deficit changes the calendar of decisions. Contracts a region is ready to sign in the first half of the year pass through the filter of the cash gap in the second; projects with long payback horizons compete for room with obligations that cannot be postponed. For suppliers of regional customers this means one thing: the value of a contract is now defined not only by its amount but by which budget line pays for it. Social policy and the national economy are the growing lines of 2025; anything standing outside them requires an extra check of the customer's ability to pay.