Israel's slashing of Palestinian tax revenues: A matter of principle

Haitham Ahmed , Wednesday 13 Mar 2019

The Palestinian Authority is refusing to receive slashed clearing funds from Israel. But is this a viable move that will get Israel to reverse course

Palestinian mourners
Palestinian mourners carry the body of Moussa Moussa, 23, during his funeral in Deir Al-Balah. Moussa was shot by Israeli forces in clashes on the Gaza border nearly two weeks ago and has succumbed to his wounds this week (Photo: AFP)

The decision by the Palestinian Authority (PA) not to accept reduced Palestinian clearing funds from the Israeli occupation generated a variety of reactions, from those who support the move to others who denounce it.

Since Israel is approaching elections, its reaction to the decision will be delayed. The economic conditions of most Palestinians, especially in the Gaza Strip, are abysmal and cannot withstand such a manoeuvre.

The Israeli government decided mid-February to withhold 502 million shekels ($138 million) of Palestinian clearing funds, which is how much the PA pays out to released prisoners, the families of those detained in Israeli jails, and families of martyrs.

Israel withheld the amount paid to Palestinian families and former prisoners in the past year, according to Israeli media.

According to the Paris economic protocol signed by the Palestinians and Israelis in 1994, the latter collects taxes on goods coming through its border to the Palestinian territories, and transfers them monthly to the government in Ramallah.

Nassif Muallem, a Palestinian political analyst, said the Israeli government, especially Prime Minister Binyamin Netanyahu, is facing legal problems related to claims of corruption.

Netanyahu wants to deflect attention from his own troubles, prepare for the elections and campaign for himself. Muallem continued that if the PA accepts being short-changed on clearing money, it would mean it implicitly agrees with Israel’s viewpoint that the money is spent on “terrorists” (as Israel claims).

Israel could later use this to file international court cases on all the funds or donations to martyrs and victims of the Palestinian cause, whether by individuals, institutions or governments.

Muallem approves of the PA’s position and wants public support to grow so it remains strong amid current conditions, and to force Israel to reverse its decision.

Muallem added that in the past Israel manipulated clearing money in 2006/2007 and 2008/2009, but that the PA was able to receive all the funds, albeit late.

Israel is obligated to comply with signed agreements, especially since they were sponsored by the world community.

He believes that in the end Israel will be forced to reverse its decision and hand over all the clearing funds, but it will take some time for that to happen. He noted that the more steadfast the Palestinian masses remain, the more likely Israel will capitulate.

The 2010 Arab summit in Kuwait agreed to provide an “Arab financial safety net” worth $100 million per month to assist the PA if Israel withheld clearing funds, a decision the PA wants Arab countries to implement now.

Nasr Abdel-Karim, an economics professor at the Palestinian Birzeit University, said that government spending is divided into four categories: salaries and wages; operating expenses; transfer expenditures; and capital spending.

He said it would be wise to halt operating spending because it does not impact the rights of citizens, including monthly spending on travel and privileges for officials, communications, and fuel for officials and senior administrators which is beyond need and at the expense of the public treasury.

This is followed by capital expenditures, such as buying the latest vehicles, offices for officials, renting offices, as well as revising payroll spending since many civil servants are not working and getting paid.

“If the PA does not pay full salaries, this will decrease spending but will also create an arears obligation for the government which will accumulate over time,” he said. This would be in addition to the government’s commitment towards importers in the private sector and the PA’s debt to local banks.

Abdel-Karim described the PA’s decision to decline the clearing funds as “too hasty”. “This is not a strategic decision to cause a confrontation or clash with Israel,” he said.

“It is an improvised decision by which the PA is trying to threaten Israel that the situation on the ground can get worse.” Abdel-Karim expects the crisis to continue until after the Israeli election, “since, for purely electoral reasons, it does not seem Netanyahu will reverse his decision to slash the clearing funds”.

“We have one month until the elections, followed by 70 days of consultations to form a new cabinet. I do not expect a resolution before that time,” said Abdel-Karim. “The deadlock could extend to beyond that, depending on the outcome of the elections.”

Abdel-Karim’s estimates are similar to those of the government, as noted in recent statements by Palestinian Finance Minister Shukri Bishara, who said that Israel’s decision could be an opportunity to overhaul the economic and financial arrangement with Israel.

“This may work out for the better,” he said. “Israel’s decision puts the PA on a path that will be difficult to reverse. Israel takes a three per cent commission worth 20 million shekels every month instead of collecting taxes from Palestinian citizens.

We must take these funds back, and we have other demands to restructure relations with Israelis, but there is only procrastination and no progress. It is time to change this reality by all means.”

Bishara continued that until the end of 2018, the Palestinian government received $1.3 billion in loans and banking facilities, which makes up 10 per cent of total deposits in the banking system, and 15 per cent of total credit facilities.

“This is a small percentage which means there is room for more borrowing,” he said. “We will borrow – but wisely. We will not take a single penny unless we are able to pay it back.”

Palestinian Foreign Minister Riyad Al-Malki said there are global diplomatic and legal efforts to pressure Israel to stop meddling with Palestinian revenues, including identifying international courts in preparation to filing a case against Israel to make it comply with international law and bilateral agreements.

Samir Abdallah, an expert at the Palestinian Economic Policy Research Institute-MAS and former planning minister, argued that if the PA decides to borrow this will be viable for a month or two, “but Palestinian banks are incapable of infinitely lending the PA, especially since the PA has already borrowed nearly $1.4 billion from the banks.”

Abdallah urged the PA to take a firm decision to stop importing Israeli goods because that could cause Israeli companies to pressure the Israeli government.

Nael Moussa, another professor at Birzeit University, said that it is not possible to annul economic agreements with Israel, which are naturally linked to political agreements.

“We are subject to Israel’s practices due to geographical, spatial and temporal realities, and if we don’t find another political reality that is not under Israeli control we cannot dispose of the agreements,” he said.

Tarek Al-Haj, dean of economics at Al-Najah University in Nablus, agrees and opined that Palestinian President Mahmoud Abbas wanted to diplomatically send a message to the world that Israel is not implementing agreements, while the world turns a blind eye on the Palestinian cause.

The PA’s options in dealing with the clearing funds issue are limited. Domestically, the campaign to boycott Israeli goods should gain traction, as stated by Fatah Deputy Chair Mahmoud Al-Alul.

He said the committee in charge of implementing the decisions of the Central Council decided to prepare a list of Israeli goods that have local substitutes so they are not imported anymore.

Israel is concerned that Palestinian refusal to receive the clearing funds will trigger security instability in the West Bank and Gaza Strip.

Israeli Radio quoted Israeli security sources expressing concern that Abbas will deduct the shortage from funds to Gaza, which will further deteriorate conditions there.

Mahmoud Al-Habash, an adviser to Abbas, said the decision could impact security coordination with Israel and undermine security agencies and civilian systems.

The US accused the PA of manufacturing a crisis by refusing to receive the first instalment of monthly tax funds transferred from Israel in 2019, and the Security Council held a closed meeting to discuss the matter based on a request by Kuwait and Indonesia.

US Special Envoy for Peace in the Middle East Jason Greenblatt attended the meeting, and was quoted by other UN diplomats at the meeting as telling the 15 members of the Security Council that it is inappropriate to focus on Israel as the cause of the crisis.

“The Palestinian Authority chose to manufacture the current crisis,” he said. The US mission to the UN did not comment on Greenblatt’s statements, while the Palestinians denounced Israel’s decision as “piracy”.

Greenblatt was quoted by diplomats as saying that payments to the families of martyrs and prisoners “give incentive for more acts of terrorism”. Last year, the US also approved legislation to slash aid to the PA if it did not stop this assistance.

Diplomats said Greenblatt called on the Security Council and others to join the US in urging the PA to stop making these payments.

*A version of this article appears in print in the 14 March, 2019 edition of Al-Ahram Weekly under the headline: A matter of principle

Short link: