After three and a half years, President Vladimir Putin is having to lean more and more on ordinary Russians to pay for his war in Ukraine.

The Russian Finance Ministry on Wednesday said it intends to raise value added tax by two percentage points to 22 percent, part of a three-year plan that aims to plug a rapidly expanding hole in public finances. VAT accounted for more than 15 percent of total government revenue last year.

After raising personal income taxes sharply at the start of the year, Putin had pledged there would be no more big changes to the tax system until 2030. However, central bank governor Elvira Nabiullina had warned at a press conference earlier this month that the widening budget deficit was the biggest risk to inflation, which according to official calculations is currently running at over 8 percent.

The Finance Ministry is not just raising tax rates. It’s proposing to bring far more small and medium-sized businesses into the tax net, reducing the annual revenue threshold for reporting to 10 million rubles ($120,000) from the current 60 million. It’s also introducing a 5 percent tax on gambling and a 25 percent income tax on bookmakers. The measures are “aimed primarily at financing defense and security,” the Ministry said in a statement.

VAT on “socially significant goods” such as children’s products, food and medicines will remain at 10 percent.

The Kremlin has largely financed three years of war with the export of oil and refined products, and by drawing down a National Welfare Fund that had been built up in years when it was making more money from oil and gas exports than it could use. Over the last couple of years, it has also taken in considerably more tax from an economy that has run hot due to the transition from a civilian to a war footing.

Running hot … and cooler

However, the economy has slowed this year as a credit boom has abruptly ended. Economy Minister Maxim Reshetnikov said earlier this month that the economy “is cooling faster than expected.” Crude prices have fallen as Saudi Arabia and the United Arab Emirates have successfully lobbied for a steady increase in oil production, and Reuters estimates that revenue from oil and gas sales will be down 23 percent on the year this month.

The Ministry had originally intended to replenish the National Welfare Fund this year, but its most recent projections, in May, showed it needed to draw down around 10 percent of the fund’s remaining liquid assets in 2025. It now intends to lower the price threshold at which oil-generated tax flows into the reserve fund, rather than the general budget.

The Ministry made its proposals to the cabinet on Wednesday just a couple of days before it is due to bring a formal budget proposal for 2026 to the Duma.

The announcement comes a day after U.S. President Donald Trump appeared to signal a shift in his attitude toward Russia and its president, with whom he has previously claimed to have a good relationship. In a social media post, Trump said that “Putin and Russia are in BIG Economic trouble” and that Ukraine’s increasingly ambitious campaign of drone strikes against Russian oil refineries is making Russia look like a “paper tiger.”

Kremlin spokesman Dmitry Peskov responded on Wednesday that Russia, which has raised alarm in European capitals over the last week with a series of violations of EU countries’ airspace, “is a real bear … there is nothing paper about it.”