Palestine Pulse

PA trapped by tax revenue freeze

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Article Summary
Palestinian President Mahmoud Abbas has allegedly promised Israel to further tighten the noose around Hamas in exchange for Israel unfreezing Palestinian tax revenues.

For the second month in a row, Palestinian state employees have not received their full salaries, after Israel froze 500 million shekels ($127 million) on Jan. 3, from the Palestinian tax revenues in response to the demand of the Palestinian Authority (PA) to join the International Criminal Court.

On Jan. 4, chief Palestinian negotiator Saeb Erekat threatened to disband the PA if Israel continues to withhold tax funds. He considered the Israeli measure a collective punishment for Palestinians, as Israel already keeps 3% of the funds collected from the taxes on Palestinian goods.

On Feb. 9, member of Fatah’s Central Committee Mahmoud al-Aloul announced the formation a committee to boycott Israeli merchandise, in response to the ban on transferring tax funds. Six major Israeli companies’ products are no longer being imported.

The constant Palestinian threat to disband the PA is mere talk. The PA cannot decide to disband itself because its presence serves Israeli security, and Israel won’t allow its collapse. Case in point, although the boycott is in full effect, their security coordination is in full swing to pursue their common enemy, Hamas. They both know that if they fail to coordinate, commando operations against the Israeli army and settlers will resume.

Al-Monitor received a copy of the statement of Secretary-General of the Palestinian National Initiative Mustafa al-Barghouti on Feb. 3, in which he noted that Israel’s move boils down to financial piracy and theft. He asserted that Israel will not back down unless it is sanctioned and security cooperation with it is halted.

Faisal Abu Shahla, a member of the Fatah Revolutionary Council, told Al-Monitor, “Israel’s freezing of the tax funds is pushing the region to the brink. When the PA slackens in keeping its financial commitments toward its citizens, an instability that nobody can surmount occurs.”

It is noteworthy that these reactions amount to only media condemnation and denouncement, and there are no actual actions on the ground. Palestinians have limited options and no alternatives, given the Israeli control of their situation and the Palestinian rift. Elsewhere, Arabs are preoccupied with their own affairs, and Palestinians lack international and regional support, leaving Israel free to punish them as it pleases.

Remarkably, Hamas did not take a stand regarding Israel’s freezing of the PA’s funds, although its employees in Gaza have not received their salaries for eight months because the consensus government refuses to recognize them.

However, the head of the economic committee of Hamas’ legislative council, Atef Adwan, told Al-Monitor, “I find the PA’s announcement that it is unable to pay its employees dubious. It is provoking the financial crisis for political and media reasons to pressure donors and show that the employees of Gaza and the West Bank share in the suffering, knowing that it can channel some expenses of the operational ministries as salaries.”

Hamas seems like the biggest beneficiary from the possible collapse of the PA, considering its financial crisis. Hamas wants to gain a strategic position that lends credibility to its political line and highlights the failure of the negotiation strategy that the PA adopted more than 20 years ago.

As soon as the Israeli decision to freeze the Palestinian tax funds was issued, the PA started seeking procedural financial solutions to resolve the crisis.

The spokesman for the Palestinian presidency, Nabil Abu Rudeina, announced on Jan. 6 that the PA will demand the activation of the Arab safety network if the tax funds remain frozen. President Mahmoud Abbas and Prime Minister Rami Hamdallah discussed the issue with Arab officials in the wake of the Israeli decision.

Mohammad Shtayyeh, a member of Fatah’s Central Committee and head of the Palestinian Economic Council for Development and Reconstruction, told Al-Monitor, “The PA is on the edge of collapse because it can’t pay the salaries of its employees, and its financial situation is quite tough. If this persists, it might even run out of gas for its security vehicles to maintain order, and employees might start exploring other employment sectors.”

Al-Monitor examined an April 2014 report issued by the General Personnel Council, which stated that the funds frozen by Israel consist of the regular salaries of the 160,000 government employees and the periodic aid provided every three months to families of martyrs, detainees and the poor social classes. The beneficiaries of the funds frozen by Israel amount to some 200,000 Palestinians.

In an attempt to manage the financial crisis, Hamdallah declared Feb. 1 that it would pay 60% of the employees’ salaries because the local monthly income of the PA amounts to 200 million shekels (around $50 million) and the monthly salaries add up to 850 million shekels ($215 million), leaving the PA relying on aid and donations to cover the deficit.

The spokesman for the Palestinian Ministry of Finance Abdel Rahman Bayatna told Al-Monitor, “The PA had to borrow money from the local banks to pay 60% of salaries. The remaining 40% will be paid as soon as there is enough liquidity.”

A source close to former Fatah leader Mohammed Dahlan, the archenemy of Abbas, revealed Feb. 22 that Abbas expressed to Israel readiness to tighten the noose on Hamas in Gaza and the West Bank so that Israel agrees to transfer the tax revenues. He will keep pursuing Hamas members as a gesture of goodwill toward Israel.

The PA took some measures to reduce the fallout from the freeze. Instead of finding a solution for more than 40,000 employees in the former Hamas government who are not getting paid their salaries, another 160,000 employees are now getting paid half what they're owed, as the PA granted junior employees, whose salaries are less than 2,000 shekels ($500), their full pay and those who earn high salaries 60% of their pay.

Finally, the PA seems convinced that the crisis of sequestration of tax funds will not be resolved anytime soon. It will have to wait until after the Israeli elections in mid-March. If the Israeli government goes back on any of its moves against the PA, this would feed electoral propaganda for its rivals in the right-wing camp, which Israeli Prime Minister Benjamin Netanyahu will not allow.

The Palestinian situation will remain subject to further economic crises while living conditions will continue to deteriorate until the formation of the next Israeli government early next May. No one can guarantee the repercussions of this long period on the Palestinian situation, which is suffering increasing economic hardships in all fields.

Found in: taxes, salaries, palestinian authority, palestine, mohammed dahlan, mahmoud abbas, hamas, gaza strip

Adnan Abu Amer is the head of the Political Science and Media Department of Umma University Open Education in Gaza, where he lectures on the history of the Palestinian cause, national security and Israel studies. He holds a doctorate in political history from Damascus University and has published a number of books on the contemporary history of the Palestinian cause and the Arab-Israeli conflict.

He works as a researcher and translator for a number of Arab and Western research centers and writes regularly for a number of Arab newspapers and magazines.

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