Russia has collected RUB225bn ($3.1bn) in "voluntary contributions" from major businesses as of late May as the Ministry of Finance (MinFin) scrambles to raise more money for the increasingly pressured budget.

MinFin expects to collect a total of RUB300B ($4.2bn) by year-end from Russia’s largest companies in a deal that followed a private meeting in March between Russian President Vladimir Putin business leaders, RBC reports.

Russian Finance Minister Anton Siluanov warned Putin in a letter that the current military spending is unsustainable and is already causing economic problems as the budget deficit soars.

The government has overspent on Putin’s war in Ukraine by RUB2 trillion ($28bn), the Financial Times recently reported. Siluanov said cuts will have to be made but was told by Putin not to touch military spending. The finance ministry asked the cabinet in February to freeze expenditure in other areas as the cost of conflict mounts.

The finance ministry estimated in February that the RUB2 trillion overspend on the conflict could rise to as much as RUB4 trillion this year in a “negative scenario”, according to the letter from finance minister SiluaNovember It added that it also expects a RUB4 trillion overspend on the war in 2027 and 2028.

The letter asked the cabinet to freeze RUB2.9 trillion of planned spending outside of the conflict for this year, RUB5.4 trillion for 2027, and RUB7.1 trillion for 2028, to cover the mounting cost of the war.

The request highlights Russia’s struggles to finance the war despite allocating RUB16.84 trillion ($238bn), or almost 40% of this year’s budget, to defence and security.

The Kremlin planned a budget deficit of RUB3.8 trillion for all of 2026. In the first four months of this year, however, Russia’s budget is already RUB5.9 trillion — or 2.5% of GDP — in the red, its largest deficit since Putin ordered the full-scale invasion of Ukraine in 2022.

Corporate contributions

This is not the first time that the Kremlin has hit up the country’s biggest companies for “voluntary” contributions to the budget. The companies are willing to pay as part of an effort to avoid forcing the government to increase its revenues by permanently hiking taxes.

MinFin last negotiated a RUB250bn one-off contribution to the budget in 2023 to raise extra funds to pay for the military after oil and gas revenues tumbled following the EU’s twin sanctions on Russian oil and gas.

The oil and gas companies had enjoyed exceptionally strong profits the year before thanks to the EU’s energy crisis, caused by the war. Russia’s oil companies are likely to enjoy strong profits again this year thanks to a windfall from the Iran war after oil prices spiked. First-quarter net earnings of Russia's leading oil producer ‌Rosneft (ROSN.MM), jumped sevenfold from the previous three months due to a rally in global oil prices, foreign exchange moves and one-offs, the company said on June 1. Income increased to RUB115bn ($1.60bn) from RUB16bn in October to December. However, CEO Igor Sechin warned that Ukrainian attacks ​on its infrastructure may lead to asset impairments and weaken its ​reported profit.

"One of the participants explained that the overwhelming majority of those attending the meeting started businesses in the 1990s, and most of those were connected to the state. And so now many consider it their duty to make such contributions," presidential spokesman Dmitry Peskov said commenting on the March meeting between Putin and the oligarchs.

The voluntary contributions eventually evolved into the 2023 excess profits tax (windfall tax). The tax was levied on large companies' profits and ultimately raised slightly over RUB300bn, exceeding the original RUB250bn target.

The Kremlin has been preparing for these negotiations with the recent promotion of the head of the leading oligarch lobbying group, the Russian Union of Industrialists and Entrepreneurs (RSPP), Alexander Shokhin as the new ombudsman for business to formalise the informal discussions between the country’s top companies and the state.

The first voluntary transfers from Russian billionaires have begun to flow into the budget. Payments are being made in tranches of severalbn rubles each from the accounts of subsidiaries.