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PA trapped by tax revenue freeze
Adnan Abu Amer
Al Monitor

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 Fatahs 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 wont 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 Israels 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,
Israels 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 Israels freezing of the PAs
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 PAs 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

Mohammad Shtayyeh, a member of Fatahs 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 cant 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

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.

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