Russia to Prosecute ‘Existential’ War on Laughable 6.3% GDP Defense Spending in 2025

In May, with the election out of the way, and Putin’s 5th term starting the military once again begged the Kremlin for a mobilization. It was turned down.

In place of it, more ‘outside-the-box’ innovations have been introduced, such as allowing criminal defendants to sidestep trial by agreeing to war service, and incentive payments for policemen who convert detainees into recruits. Some cops have already been told their priority mission now is getting bodies for Ukraine, not sending cases to court. It is hoped up to 40% of those charged can be funneled into Ukraine instead. Tasking police and prosecutors with getting meat for the grinder, what could possibly go wrong?

While it just got doubly dangerous to get into a “hometown jam” in Russia, it’s doubtful this new source of recruits will be changing Russian war luck.

But if the army isn’t getting the manpower mobilization, what about an economic mobilization?

Reuters and The Guardian report a planned 25% increase in military spending for 2025, AFP and Le Monde say the bump is actually 30%. So I guess, problem solved, the army will be swimming in money now? But let’s take a look under the hood ourselves just in case.

The 2025 draft budget has defense spending rising from 10.8 trillion rubles in the 2024 plan to 13.5 trillion. That is indeed a 25% rise in ruble terms. But this is also a country where the M2 money supply as per official data has shot up from 65 trillion rubles at the start of the war, to 107 trillion by September.

The federal government runs a tight budget with very little deficit spending, but businesses have been loading up on debt to get the capital needed to restructure and adapt to the radical change in the landscape brought on by the sanctions and war. For example, in the modern Russian system, even a state-owned defense plant told to double its production will not get the funds from the government to finance the expansion. It must go to a bank and get a loan like everybody else. In a fractional reserve system, the bank then issues new money to realize the loan.

But of course, banks do not create new capital, they only create new claims to what capital exists within a nation. The 65 percent rise in money supply in just 32 months bakes in a ruble devaluation, some of which has already taken place, and some of which is yet to hit in 2025 and subsequent years.

Indeed, where the federal spending was 30.3 trillion last year, 36.7 trillion this year, the plan for next year has it at 41.5 trillion. That is a 36% rise over two years. These ballooning numbers aren’t revenue windfalls. A small part of the story is additional revenue from tax hikes, but the vast majority is inflation. Due to more rubles in the system, the same taxes harvest more rubles each year.

In such an inflationary environment comparing defense budgets by nominal amounts is absurd and misleading which the media surely knows. The proper way to do it is relative to budget and GDP. The 2024 draft set defense spending at 29.5 percent of the federal budget, the 2025 sets it at 32.5 percent. — So what the army is actually getting is a 10 percent spike in funding, not 25. (32.5 percent sounds high but that comes down to just over 20 percent of total public spending when regional budgets are added.)

Moreover, this is a spike from a very low base level. Where the 10.8 trillion spent on the army last year represented 6 percent of the GDP, in 2025 that is projected to rise to 6.3 percent of GDP. (So in GDP terms the increase is even lower, a mere 5 percent.)

In the mid-1980s the US was spending anywhere from 6% GDP to 6.5% GDP in peacetime. At that same time, the Soviet Union was spending 12-15%. Ukraine currently spends about 30% GDP. During WW2 the US spent 40% GDP, the UK 45% GDP, and Germany and the Soviet Union 50% GDP.

Thus, what is billed a record spending increase to unprecedented heights, turns out to be a tiny bump from 6% GDP to an equally pedestrian 6.3% GDP.

The Kremlin continues to bill the war as an ‘existential’ one, but treats it as anything but in practice.

Meanwhile, over 150 Russians continue to perish every day.