Analysis

The Unlikely Defenders of Palestinian Labor in Israel's Knesset

A surprising cross-party consensus prevented a vote on a proposal to increase taxation of Palestinians working in Israel. The treasury claim that it was based on a World Bank recommendation is full of holes.

Palestinian workers waiting to pass through the Tarqumiya checkpoint and start their workday in Israel.
Emil Salman

It was certainly a drama for some of those involved: For the third time since last August, Finance Minister Moshe Kahlon’s proposal to raise the taxes of Palestinians working in Israel and the settlements was blocked. But the bride – that is, the Palestinian workers themselves – were probably unaware of the drama when a rare, wall-to-wall consensus in the Knesset Finance Committee postponed the possible reduction of their salaries.

The objections of the various factions – from the Joint List to Habayit Hayehudi – to the proposal helped the committee’s chairman, Moshe Gafni, to prevent a vote last Monday on “the order concerning income tax.” If the proposal to lower the credit points on the Palestinian workers’ wages had come up for a vote, it would have been defeated. An embarrassment to the minister and the ministry.

Kahlon’s proposal was presented as a means of narrowing the deficit in the Palestinian budget and upgrading the checkpoints which tens of thousands of workers cross daily. The proposal, it was claimed, is based on a World Bank recommendation.

But it appears that the parents of the bride – namely, Palestinian Finance Minister Shukri Bishara and the Palestinian Labor Ministry – knew nothing about the suggested change. And, what’s more, they insist they are not interested in it. Furthermore, the World Bank actually framed its recommendation in a very different way, so much that a stench of abuse reeks from the Israeli proposal.

Not every member of the Finance Committee knew in advance that Kahlon’s proposal would be brought to a vote on Monday. Specifically, MK Ahmad Tibi (Joint List) – who had been asked by Gafni to ascertain the Palestinian Authority’s position on the issue when the proposal was initially raised on August 8 – didn’t know about it.

Tibi told Haaretz: “Gafni, who like me doesn’t like the proposal, entrusted me to clarify the claim by treasury officials that the Palestinian finance minister is the one who asked for it. I spoke with the Palestinian finance minister and he denied it and said they never approached him.”

The main points of the Israeli proposal to change the Palestinian workers’ taxes (also based on the ministry’s response to Haaretz) are:

1. Lowering credit points per worker from 2.25 to 1.25, starting in 2019. [Each credit point is worth 215 shekels per month; Palestinians do not receive additional credit points, such as for parenting or an unemployed partner.]

2. To finance the government decision to strengthen economic cooperation with the PA by employing Palestinian workers in Israel, in the years 2017-18 Palestinians will be granted only one credit point.

3. The expected annual increase in tax collection will be about 220 million shekels ($57.9 million). Some 170 million shekels of that will be transferred to the PA to “empower its financial resoluteness,” while the rest will be allocated to upgrading checkpoints. [According to the Paris Protocol on economic relations, 100 percent of taxes from Palestinians working in the settlements, and 75 percent from those working inside Israel itself, should be transferred to the PA treasury, with the rest held by Israel.]

4. According to the World Bank, raising the taxes of Israeli-employed Palestinians – whose salary is usually around the Israeli minimum wage (currently 5,000 shekels per month) – will bring them closer to the taxation rate of their counterparts in the Palestinian labor market, where in many sectors the wages are even lower than the Palestinian minimum wage of 1,450 shekels. [A monthly salary of up to 3,000 shekels is tax-exempt in the PA; the taxation rate between 3,000 and 6,250 shekels is 5 percent.]

5. The World Bank recommends reducing the financial attractiveness of Palestinian construction labor in Israel, in order to encourage them to gain an education and join the workforce in the West Bank.

6. To encourage Israeli firms to employ Israeli workers by increasing the cost of Palestinian labor.

In an urgent letter to Gafni from the lawyers of nonprofits Kav La’Oved and the Association for Civil Rights in Israel (prior to a second discussion that was due to take place earlier this month but was subsequently postponed), they detailed their key objections to the change: Raising taxation would violate the principle the government established back in 1970 – maintaining equal pay for Palestinian and Israeli workers; the Israeli treasury would be making money on the backs of the weakest sector of workers, who already suffer numerous infringements to their rights; the use of the money to improve checkpoints was a cynical shirking of the government’s responsibility to improve their dreadful state; the gap in wages between the Palestinian labor market and the Israeli one derives from the application of Israeli labor laws, which should not be transgressed.

Meanwhile, Haaretz asked the World Bank whether its representatives had mentioned lowering the financial attractiveness of using Palestinian construction laborers in Israel. In other words, did they recommend discouraging Palestinians from working in construction in Israel. A sense of astonishment arose from their polite reply: “I can’t remember it,” the bank’s spokeswoman said, in a pre-official response.

In its official reply, the bank wrote: “The World Bank commended Israel in its AHLC report of September 2016 for their decision to increase the quota of Palestinian West Bankers working in Israel. ... It creates benefits to the Palestinian labor market in the short term, while providing a source of competitive labor to Israel.”

Indeed, the recommendation to increase the taxation already appeared in the organization’s April 2016 report. But there, the recommendation stated that the Palestinian Finance Ministry should collect the tax, not Israel. The collection mechanism the World Bank suggests is cumbersome, argued the Israeli Finance Ministry.

Asked its opinion on the Israeli Finance Ministry’s position, the World Bank responded:

“The specific mechanism for achieving this objective with respect to Palestinians working in Israel should be determined through discussions between the Govt. of Israel and the PA. The mechanism now being proposed by Israel involves higher withholding of taxes by the Govt. of Israel from Palestinians working in Israel. This option could work if the taxes collected are transparently recorded, and systematically transmitted to the PA.”

In other words, the World Bank, again politely, explained its reservations: When it talked about equalizing taxation, it didn’t mean that Israel would pour another 25 percent or so of Palestinian money into its coffers. The bank also hinted that Israel is not acting transparently when detailing the moneys it collects from the Palestinians.

According to calculations made by the World Bank last April, the amount of money that can be added to Palestinian coffers following increased taxes will reach $22.4 million annually. But according to the Israeli assessment, $57.9 million will be added. Even if Israel increases the number of Palestinians allowed to work in Israel by 25,000 this year (to 100,000, up from the current figure of 75,000), how does the Israeli Finance Ministry explain the difference in assessments? Haaretz asked a treasury spokesperson, but its response did not include an answer to this question.

A further question, asking whether the Palestinian Finance Ministry was the one requesting increased taxes – and if so, when – also went unanswered.

In its recommendation, the World Bank did not take into account the fact that Palestinian workers in Israel leave for work at 4 A.M., wasting time and energy at humiliating checkpoints. They return home 14 hours or more later, including lengthy walks because they have no transportation to the checkpoint. The recommendation also ignored the brokerage fees these workers have to pay middlemen.

The World Bank did not respond to a question by Haaretz on the matter.

But these questions have already become less relevant now, since the opposition of right-wing members of the Knesset Finance Committee “to enhance the financial resoluteness” of the PA came on top of Gafni’s concerns for the welfare of the non-Jew and the objections of left-wing lawmakers to violating the rights of Palestinian workers and Israel’s labor laws.