Russia will spend more on supporting its economy than funding its armed forces next year for the first time since 2014, as the kremlin ramps up borrowing to pay for increased social spending ahead of critical parliamentary elections.

Russias economy has been in the doldrums for years amid low oil prices and western sanctions, and will contract sharply this year due to the effects of the coronavirus pandemic.

The kremlin announced a splurge in spending this summer in a bid to mitigate the damage caused by covid-19, and arrest a steady fall in living standards and household incomes that has hurt president vladimir putins ratings and the popularity of his ruling party, ahead of elections next september.

Moscow is set to cut back defence spending and reduce handouts to oil companies, while increasing taxes on metal and mining industries and high-earners to help pay for the rise in spending, alongside increased borrowing that will increase its public debt load by about 50 per cent.

The budget, details of which have been published by state-owned news agencies, was signed off by the government last week, it said in a statement on saturday. it will now be discussed in the countrys parliament.

The budget should preserve its social orientation and ensure the implementation of the national development goals, prime minister mikhail mishustin said on friday.

Defence spending will be cut by 5 per cent, taking it below the level of spending on state-backed industries for the first time since 2014. social measures will rise by almost 10 per cent to account for more than a quarter of the entire budget.

At the same time, following proposals outlined by mr putin earlier this year, russias flat income tax will be scrapped in favour of a higher rate for those earning more than rbs5m ($65,000) a year and a new tax will be levied on bank deposits larger than rbs1m.

Mr mishustin has also proposed slightly increasing taxation on a number of lucrative industries, including proposals to pare back tax breaks for oil production, raise levies on mining of metals and hike taxes on tobacco products.

Russias budget policy rests on a mix of populism, higher taxes for the middle class and promises of continued fiscal support for the poor, each seen as an effective tool to garner support for the ruling party in an election year, said vladimir tikhomirov, chief economist at bcs global markets in moscow.

The need to keep high volumes of spending on anti-crisis measures... has led authorities to agree to a significant rise in the volume of domestic public debt.

Russias fiscal surplus of recent years is set to swing to a deficit of about 4.5 per cent of gross domestic product this year, according to government forecasts, which expect a deficit of 2.4 per cent in 2021 and 1 per cent in 2022.

Extra borrowing to fill that gap will see the countrys public debt-to-gdp ratio jump to about 20 per cent next year from 13 per cent at the start of this year, according to the countrys finance minister.