Israel-Palestinian tax deal has implications beyond economy

Israel transferred 1.5 billion shekels ($431 million) to the Palestinian Authority on Oct. 6. It was tax money that Palestinian President Mahmoud Abbas had been refusing to take because Israel had deducted a portion of it. With the transfer over the next few weeks of another billion shekels, the Palestinian Authority will be spared economic devastation. The transfers mark the end of six months of power games and mutual recrimination between Israel and the Palestinian Authority. Neither side won — more precisely, both sides came out losers.

To summarize, in early July 2018, the Knesset adopted the deduction law, which enabled the Israeli authorities to deduct stipends paid by the Palestinian Authority to Palestinian prisoners and families of Palestinian assailants from tax revenues collected by Israel on the PA’s behalf. The bill was advanced by two Knesset members: Avi Dichter (Likud) and Elazar Stern (Yesh Atid). They both crowed about how the law would teach the Palestinians a lesson and prevent them from encouraging terrorists to kill Jews. Right before the vote Dichter, a former Shin Bet director, sent a message to Abbas in Arabic: “A curse on your house, Mr. President. Instead of the Palestinian Authority that you head spending money on health care and education, you, Mahmoud Abbas, spend 7% of your budget on terrorism!”

Though the law passed with an absolute majority of 86 votes, Prime Minister Benjamin Netanyahu heeded the warnings of the defense establishment and was in no hurry to implement it. But two months before the April 2019 election, the Choose Life Forum of the Families of Victims of Terrorism called a press conference and told the public that the law had not been implemented and that despite its promises, Israel was not deducting money spent on terrorism from the tax money it collected for the PA. Netanyahu got nervous and called a meeting of his security cabinet to ask it approve retroactive implementation of the law. The measure was approved despite warnings from the defense establishment that it could lead to an escalation of tensions and even the collapse of the PA. No one would listen to these warnings, not before an election. The ministers were worried that Netanyahu’s right-wing base would punish Netanyahu otherwise.

Abbas decided to fire back. On April 29, he announced that the PA would refuse to accept the money if a single shekel was deducted. Like Netanyahu, Abbas was also unable to withstand the pressure, particularly from the families of the martyrs and the prisoners. The decision not only led to an economic crisis in the PA but improved the standing of the martyrs’ families and resulted in a promise to increase their monthly stipends. Meanwhile, the PA staff saw their own salaries sliced in half as a result of the crisis, fighting to survive economically while embracing Abbas for his courage in refusing to forsake “the families of the heroes.”