Freezing Palestinian Tax Money a Double-edged Sword for Israel

Israel's freeze on transferring tax revenues could boomerang if other countries bail out the PA, and if the latter imposes sanctions on business dealings with Israel.

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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Mahmoud Abbas, right, and Saudi Arabia's Iyad Bin Amin Madani, Jan. 4, 2015.
Mahmoud Abbas, right, and Saudi Arabia's Iyad Bin Amin Madani, Jan. 4, 2015.Credit: AFP
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

The half billion shekels ($128 million) in tax revenues that were to be transferred to the Palestinian Authority, but which were frozen by Israel last Friday, are a little bit less than the amount the PA spends on salaries for its employees in a single month.

This fact underlies the grave fear that the authority will be forced to delay salary payments until it finds a different solution.

It is worth recalling now that one of the main justifications for the protest in the Gaza Strip before Operation Protective Edge, which encouraged Hamas to attack Israel last summer, was the complete ban imposed by Jerusalem on the transfer of the tax money from the PA and Qatar, to the Islamic movement's government in Gaza.

We can learn from this that any sanctions imposed by Jerusalem on the PA could very well serve as a double-edged sword against Israel.

But there is still doubt whether the PA – which was well aware of the possibility that Israel would withhold funds, in the wake of the Palestinians application for membership in the International Criminal Court in the Hague – will support a violent Palestinian response to this latest move.

As opposed to the government in the Strip, the PA has many other alternative sources of aid – on paper, at least.

For example, Saudi Arabia donated $20 million a month last year to help cover the PA's ongoing operating deficit.

Moreover, the International Monetary Fund gave the PA $31.6 million at the end of December, and in the background is a commitment by the Arab League to provide $100 million to the PA in case Israel stops the flow of all money.

The important question is whether the U.S. government will provide the PA with the $400 million in aid it earmarks for it each year, since a law passed by Congress makes such payment conditional on the Palestinians not turning to the ICC.

All these are significant sums for the PA, whose 2014 budget was $4.2 billion, of which $1.2 billion came in the form of aid from outside sources.

By comparison, Saudi Arabia, the United Arab Emirates and Kuwait provided almost $11 billion to Egypt last year – i.e., two and a half times the budget of the PA, and seven times the amount of monetary assistance the United States grants to Egypt every year.

If the Gulf states decide that the Palestinians' struggle in the global diplomatic arena is worth supporting – they will not have a problem covering the PA’s deficits, including the sums Israel has frozen.

It is also possible to assume that some European countries, such as Norway and Sweden, which have already officially recognized a Palestinian state, will come to the aid of the PA if it turns out Israel is continuing to violate the Paris Accords from 1994, and is not transferring the tax monies it collects on behalf of the Palestinians.

Such an Arab and European rescue plan could render Israeli sanctions worthless. In addition, Jerusalem's ostensible violation of the agreements could possibly be a justification for a lawsuit.

Moreover, if Arab and European nations decide to counteract the Israeli sanctions, Jerusalem will find itself on yet another collision course with European countries – which are already viewed in Israel as hostile, due to their support and recognition of a Palestinian state.

The paradox is that while Israel has frozen the revenue transfer to the PA, the trade between Israel and West Bank Palestinians continues to go on normally for now.

The West Bank imports about 72 percent of its goods from Israel – in other words, the Palestinians buy some $2.75 billion worth of goods and services from Israel and export some $750 million to Israel.

We can learn from this that Israeli goods and service-providers enjoy almost three times as much business from the Palestinian market than the Palestinians enjoy vis-a-vis the Israeli market.

This means the PA has in its power quite a few means to put pressure on Israeli businesses, and can even implement sanctions against them in response to the sanctions Israel imposed on the PA.

Beyond the commercial considerations, the question is what will Israel achieve by implementing illegal decisions? Such moves have already been tried in the past – once in 2012, when the PA turned to the UN General Assembly and won recognition as a nonmember state; and previously, in 2011, as punishment for the announcement of Fatah's reconciliation with Hamas.

In both cases, the sanctions did not lead to any change in the Palestinian’s policies.

This time, too, it would be a mistake to expect the PA to relinquish its various international initiatives, especially after adopting a strategy of mounting a diplomatic effort instead of an armed struggle.

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