This week, the taxes and Customs duties that Israel is withholding from the Palestinian Authority reached 1.74 billion shekels ($435 million), after regular payments to Israeli hospitals, the water company, Mekorot, and Israel Electric Corp. were deducted.
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The taxes and customs duties — or clearance revenues — that Israel collects and is supposed to transfer to the Palestinians (for a fee of 3%) constitute roughly two-thirds of the PA’s yearly domestic revenue and three-quarters of the public sector’s wage bill.
March marks the third consecutive month in which PA employees received only 60 percent of their salaries (those who make less than 2,000 shekels a month received the full amount). No one knows how much of those salaries will be paid next month.
Some assume, or hope, that Israel will transfer the funds after Tuesday’s election. But PA Finance Minister Shukri Bishara says he has no idea whether that will happen. He and the rest of the Palestinians are living shrouded in uncertainty.
“I find it particularly painful that the Israeli government went straight to the economic policy, to coercive tools,” Bishara told Haaretz. “If I were an Israeli, I would simply want to have a neighbor who has a standard of living reasonably close to mine.
“We have to eliminate frustration, negative outlooks. We have to give a slight indication that there is simply a light at the end of the tunnel. To go and hit something — the economic relations, banking relations — that was one of the few reasonably functioning interactions between Israel and Palestinian society; to destabilize it and to hit straight at something good: I find it truly counterproductive.”
“Security is typically vulnerable and becomes exposed,” Bishara says.
“You cannot expect the same degree of command and control and commitment from your security forces if you do not meet their basic requirements, financial requirements,” he says. “[The] Israeli government should be careful about this. It is an area of vulnerability that they should not underestimate.”
Roughly 70,000 Palestinians are employed by the PA security forces (not including Hamas security personnel in Gaza). Roughly 27 percent of the PA’s budget is allocated to the security forces, which continue to coordinate with the Israeli army and intelligence, despite the PLO Central Committee’s decision to cease coordination.
Israel’s current withholding of clearance revenues as a punitive measure is its fifth since the Second Intifada began. Failure to transfer the Palestinian money causes further volatility within an already abnormal economy.
Bishara reiterated that real economic development is impossible under military occupation, which includes control of borders as well as internal roadblocks, the “lost economy” of Area C — the West Bank area under full Israeli civilian and security control — and the siege and disconnection of Gaza.
Despite these realities, Bishara continues to speak about the economic improvements he aspires to bring about in this highly irregular economic model.
Since being appointed finance minister almost two years ago, Bishara has focused on improving tax collections and shrinking the budget deficit, which is likely to soon reach $2 billion, while the yearly budget for 2014 was $4.21 billion.
Within a captive economy like the PA’s, the only room to maneuver is in fiscal policy, he says. Better tax collection stemmed from technical and bureaucratic improvements, including Israel’s belated consent to transfer computerized data, which helps reduce tax avoidance.
The PA was able to do this while Yair Lapid was Israel’s finance minister, and Bishara noted that he and Lapid shared a positive professional relationship.
Bishara now proposes tax cuts for individuals and companies and wider tax exemptions to stimulate economic activity. His predecessor, Salam Fayyad, slightly raised companies’ taxation, to the dismay of the private sector.
“I am experimenting [with] a different approach,” says Bishara, who relates to the Palestinian economy under occupation as an “untested economical model.”
What created that model was the Oslo agreement and the Paris Protocol on Economic Relations, which were supposed to last for five years.
“Looking [back] it would have been insane for any one party to enter into the Oslo agreement, had they had the foresight that it could last two decades,” he says. “It is not sustainable and not workable. We can in the interim do things, interim makeshifts, improvement here and there, but in the long run we cannot have a sustainable, viable, economy in the absence of a final peace deal.”
In contrast to Israel’s earlier withholding of tax funds, no agitation or protest has arisen in West Bank towns. Previously, it had been the Palestinian trade union of public employees that heated up matters and pointed a finger at the Palestinian Authority, even when Israel was truly to blame.
Since last year the PA, under clear orders from President Mahmoud Abbas, has worked to silence that trade union. Some of its leaders and supporters have been detained and the union has been outlawed.
Lately, public employees have held a few demonstrations to protest the wage cuts, but they placed the blame solely on Israel. In addition, senior Fatah officials initiated a boycott on Israeli goods, and their campaign allowed some rage. It’s unknown whether these acts of blowing off steam and the union being hushed are connected.
Economic distress and fears
But there is one result: the economic distress and fears faced by tens of thousands of families are not being openly expressed as they were.
Business owners say checks are bouncing. Families are borrowing wherever they can: from relatives and friends who don’t depend on government salaries or who work in Israel, from banks, from the local grocery store owner. And they give up on anything that’s not basic.
The PA is working in emergency mode for the third month running, cutting expenses wherever possible and funding essential services in cash. In addition, many officials are being asked to work from home to avoid transportation expenses and the banks have been ordered not to charge fees for bounced checks.
“Sometimes I’m asked how much longer we can survive like this,” says Bishara. “It depends on the definition of ‘survival.’”
Even discounting the current economic recession, the statistics show a downward trend.
The war in Gaza intensified an already dire situation, with unemployment at 26.2 percent in the PA and more than 40 percent specifically in the Strip. Only two or three of every 10 university graduates can find a job, Bishara says.
In addition, gross domestic product and income per capita continue to drop. According to the Palestinian Central Bureau of Statistics, the real GDP per capita was $407.90 in the third quarter, down 9 percent from the second quarter and 10 percent from the year earlier.
In the West Bank the declines were 3.4 percent and 1.1 percent, respectively, and the average income per capita was $556.10. In Gaza, however, the average GDP per capita plummeted to $194.70, down 29 percent from the second quarter and 34 percent from the year-earlier period.
The Palestinians’ incredible resilience and internal solidarity, says Bishara, mitigate the enormous hardships.
Asked why the PA continues to cooperate with the status quo, which harms Palestinians and benefits Israel, he responds that as an economist he’s been given a professional task and he intends to fulfill it for as long as the political leaders wish.
“This leadership is very wise; they are not short-termist, they see beyond, they see the future,” as well as the peace that could guarantee prosperity for both peoples, says Bishara.
“But [one] may be pushed to the corner, or external factors might destabilize this equation. It keeps working until it stops working. And one day it will stop working.
“As far as I’m concerned, within a year and a half things will go out of control. We can no longer hold the pieces together.
“I doubt if I will be able to have this kind of relaxed conversation in a year’s time. Like a disease, like a fatal disease, at the beginning it is manageable, Stage 1 or 2, but when you reach Stage 4 it is impossible to treat.”
Amira Hass tweets at @hass_haaretz