Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz decided Sunday to confiscate the tax revenues that Israel collected for the Palestinian Authority during the month of November, and use it to offset the PA's debt to Israel's Electric Corporation.
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The move comes in response to Thursday's upgrade of Palestine at the United Nations to nonmember observer state, following a vote of 138 to 9. Following the upgrade, Israel announced on Friday that it intends on building 3,000 new homes in settlements in East Jerusalem and the West Bank.
The confiscation of funds, which total NIS 460 million and are intended for the salaries of PA officials, comes after Israel warned of the move ahead of the UN vote. On November 11, Steinitz warned: "If the Palestinians continue to advance their unilateral move they should not expect bilateral cooperation. We will not collect their taxes for them and we will not transfer their tax revenues."
However, as the Israeli government weighed the legal implications following last week's UN General Assembly vote, it was not expected to rescind the economic accords that govern relations with the Palestinian Authority or do anything that would bring about its collapse.
In the weekly meeting on Sunday, Israel's cabinet unanimously decided to reject the UN decision to upgrade Palestine's status. In the decision, it was written that the West Bank is a "contested area" over which the "Jewish people have a natural right."
Moreover, the cabinet decision also stated that the UNGA decision "will not serve as the basis to future negotiations with the Palestinian Authority and it cannot advance a peaceful solution."
Netanyahu also compared the recent UN General Assembly decision to recognize Palestine as a nonmember state with observer status to the 1975 UNGA decision that equated Zionism with racism. During the weekly cabinet meeting, Netanyahu read out the cabinet decision from 1975 in which then Prime Minister Yitzhak Rabin said that in response to the UN decision, Israel will accelerate plans to settle in various parts of the country, as well as in West Bank settlements.
Ahead of the PA's expected upgrade at the UN, Israeli officials had weighed a number of retaliatory steps, such as reconsidering the provisions of the Oslo Accords, including the 1994 Paris Protocol.
The protocol regulates economic ties between Israel and the Palestinian Authority, tasking the former with collecting taxes and customs duties on the latter's behalf, amounting to around $100 million a month on goods imported into the Palestinian territories
Israel has previously frozen payments to the Palestinian government during times of heightened security and diplomatic tensions, provoking strong international criticism.
In 2011, Israel froze November's transfer of October's $100 million in tax funds to punish the Palestinians for their efforts to win UN recognition of their independence. The Israeli decision came after the Palestinians were accepted to the UN cultural agency UNESCO as part of a broader effort for admission as a full member state at the United Nations.
On November 30 that year, Israel announced that it would release the funds owed to the Palestinian Authority, ending a standoff that the Palestinians said had caused grave damage to their fragile economy.
The tax funds from customs duties and other fees are needed by the Palestinian government, the largest single employer in the Palestinian territories, to pay tens of thousands of workers, as well as security forces, which have won praise for their cooperation in halting militant attacks on Israelis.
The move followed heavy pressure from the United States, United Nations and Europe on Israel to free the money.