Russia could be set to close the door on drawdowns from the National Welfare Fund as Parliament looks for higher taxes to come from the country's oil and gas producers.

The lower house of Parliament, the Duma, has rubberstamped a draft of the federal budget for the next three years.

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The document that will now go for approval to the upper chamber of the parliament, the Federation Council, firms up the government's plan to run the country in deficit between 2021 and 2023, with social and military expenditure rising steadily ahead of presidential elections set for 2024.

Those elections could, however, be brought forward if the Kremlin sees the approval ratings of President Vladimir Putin falling.

Oil taxes gone

High energy prices that lasted for over a decade led to unprecedented flow of taxes from the oil and gas industry, with some 8.35 trillion roubles ($111 billion) entering the Russian budget last year alone.

However, government officials now anticipate the average price of Russian oil at export markets to run between $45 and $48 per barrel in the next three years, leading to the budget deficit of almost 2.8 trillion roubles next year.

Budget revenues next year are anticipated at a modest 18.7 trillion roubles, with spending planned at 21.5 trillion roubles.

State borrowings

Parliamentarians approved the governmental proposal to cover the deficit by resuming massive state borrowings on international and domestic financial markets.

Between 2021 and 2023, the government hopes to raise over 7.4 trillion roubles of new debt.

The plan comes despite Russia and some Russian corporations currently being under US and European sanctions, with new restrictions expected to be approved next year in response to alleged continued Russian interference in Western democracy processes and the crackdown on political freedoms and free speech.

New debt borrowings are set to keep intact over 12.5 trillion roubles of savings that Russia had accumulated in its National Welfare Fund during the period of high energy prices. However, the government dipped into that fund this year to cover a shortfall in revenues.

Oil industry pain

Leading oil producers in Russia have already warned that they will able unable to restore production and profitability after the recent cancellation of tax priviledges and worsening of financial terms for the experimental netback tax regime, which was started only last year to foster investments into high cost oil projects.

However, according to the approved budget, the government still expects the share of oil and gas taxes in total tax payment to rise from 29% this year to almost 34% in 2023.

In October, authorities offered producers the option to switch their expensive oilfield development projects that will see their tax concessions vanishing, into the netback tax regime from 1 January 2021 to partially compensate for the loss of tax privileges.

However, the proposal has been met with scepticism from the oil industry, with regional producer Tatneft stating on Friday that its directors have decided that such a switch would be “inappropriate”.

Other major oil producers, including Lukoil and Gazprom Neft, said that they are still evaluating the economic merits of the proposed switch for affected heavy viscous oil developments.