When the Israeli cabinet voted in February to put into effect a law freezing part of the tax revenues Israel transfers to the Palestinian Authority every month, it was dismissed a cynical election stunt. But the election is over, the freeze is still in effect and, day by day, is bringing the PA closer to collapse. The settlers may end up realizing their annexation fantasy by way of the pocketbook.
But before we speculate on the outcome, a little background is in order.
Haaretz Weekly Ep. 25
Under the 1994 Paris Protocol, Israel transfers income taxes collected from Palestinians working in Israel and customs charged on imports destined for Palestinian areas to the PA. It was supposed to be an interim arrangement pending the creation of a Palestinian state that could collect its own taxes and customs.
But that never happened and over the years the PA became this strange fiscal bird that received the great majority of its revenues from Israel and foreign donations.
It’s not a great system, but there wasn’t any realistic alternative to it. The occupation and PA corruption have prevented the emergence of a private sector that could create jobs and economic growth, so the PA became by default a major employer and engine of the economy. Joblessness in the West Bank and Gaza is in the double digits, but for those who have work, the public sector is not only a major employer but a well-paying one.
Another way the PA spreads the wealth is payments to Palestinians held in Israeli prisons and to the families of Palestinians killed by Israeli troops. By one estimate, this aid comes to a hefty 7% of the PA’s annual budget.
From Israel’s point of view this is nothing less than official support for terrorism. It may even encourage it. According to Israel’s Defense Ministry, a Palestinian serving a 20-30-year term in an Israeli prison gets 10,000 shekels ($2,770) a month; those in for 3-5 years get 2,000.
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When you consider that the average daily wage in the West Bank and Gaza is just 102 shekels, even the lower payment is a quite substantial amount.
Whether that encourages terrorism is hard to say. On the Israeli right, no one doubts that it does. The idea is appealing because they don’t believe there ever was a Palestine and so there can never be one. Without Palestine, there are no Palestinians, so anyone who risks his or her life in the name of the cause must be a dupe, a violent criminal or expecting a payout.
Alas, if it were all so simple. But in the Knesset it was deemed just that last July, when MKs passed legislation enabling the government to deduct from the tax transfers an amount equal to payments to security prisoners (though not the families of dead terrorists), or about 500 million shekels annually. The Netanyahu cabinet waited until February to implement the law.
The money Israel is deducting isn’t that much relative to the PA’s annual budget and by itself wouldn’t have done terrible damage even to the ailing Palestinian economy. But Palestinian President Mahmoud Abbas made sure it would: he answered the Israeli tit of deducting some aid with the tat of refusing to take any money at all, unless it comes unconditionally.
Now we’re talking big money in Palestinian terms. The World Bank estimates that transfers from Israel constitute two thirds of PA revenues and 15% of Palestinian GDP. Abbas has ordered wage cuts for Palestinian civil servants and cut aid to the poor to save money and continue payments to prisoners.
If one side doesn’t back down soon, the World Bank warns that the West Bank economy will begin to contract. Where that will lead is anyone’s guess. But it’s hard to imagine that rising unemployment and poverty won’t spur violence, boost Hamas recruiting in the West Bank and quite possibly lead to the collapse of the PA itself.
The Oslo peace process is dead in the water. Trump’s Deal of the Century, now slated to be revealed to a waiting world in June, apparently does little or nothing to satisfy Palestinian political aspirations. With no political role to play, the PA’s last raison d’etre has been to send money percolating through the West Bank and Gaza and prove a modicum of law and order. Now it’s struggling to fill even that role.
Abbas has been playing a losing game of poker. He was reportedly counting on the transfers resuming after either a centrist government was elected in Israel, or that a re-elected Netanyahu would resume his pre-election pragmatism. Bibi and Finance Minister Moshe Kahlon reportedly held an emergency meeting on Sunday over concerns of a PA collapse, but there is little room for optimism: Bibi is forming an even more right-leaning government than the last one.
Netanyahu and Kahlon may be anxious, but you can imagine there are many inside the future government and in the settlements who are glad to see it happening. If the PA goes down, it will be Israel that fills the vacuum. We’ll have a pre-Oslo occupation. No more pesky Areas A, B and C as the last remnant of official Palestine and the Oslo process disappears.
Bibi fired up the annexation locomotive with the aid freeze and gave an “all aboard” signal when he threw his support to the idea. The train is pulling out of the station.