PA employees have not received their full salaries for the second month in a row after Israel froze $127 million in Palestinian tax revenues in response to the PA’s submission of a request to join the ICC.
The Palestinians reacted angrily to Israel’s decision, and Saeb Erekat, the Palestinian senior negotiator, threatened on 4 January to dismantle the PA if Israel continues to withhold tax revenues. He described Israel’s actions as collective punishment against the Palestinians, despite the fact that Israel takes 3 per cent of the tax revenue from goods.
The repeated threat made by the Palestinians of dissolving or dismantling the PA is nothing more than a publicity stunt, as the PA cannot make the decision to dissolve itself because its existence serves Israel’s security interests and therefore Israel will not allow it to be dismantled. This is evidenced by the fact that even at the height of estrangement between Israel and the PA, security coordination between the two continues as normal in order to persecute their mutual enemy: Hamas. They both know that a decline in security coordination would mean a return of suicide bombings and operations between the army and settlers.
We have noticed that these reactions have come in the context of media condemnation, but have not been translated on the ground. The Palestinians have few options and no alternatives due, on the one hand, to Israel’s continued control over their situation and, on the other, to internal Palestinian division; not to mention Arab, regional and international lack of support. This gives Israel complete freedom to punish the Palestinians however they choose.
It is interesting that Hamas has not yet announced its position towards Israel’s freezing of the PA’s tax funds, especially since its employees in Gaza have suffered for the past eight months without receiving their salaries. This is despite the fact that some of its spokespeople doubted the PA’s announcement of being unable to provide its staff with salaries, saying that the PA has fabricated the financial crisis for political and media reasons in order to pressure donors and to highlight that West Bank and Gaza employees are suffering the same situation. However, the PA does have the option of transferring some of their ministries’ operational expenses to pay the salaries.
Once the Israeli decision to freeze the Palestinian tax revenues was issued, the PA began to look for financial solutions to the current crisis; and it announced that it was going to request the activation of an Arab safety net in the event that the tax revenue funds remain frozen. This was discussed with Arab officials by President Abbas and Prime Minister Rami Hamdallah following Israel’s decision.
The PA’s warning that it is on the verge of collapsing due to its inability to pay its employees’ salaries and its poor financial situation is significant. If it continues in this situation, it will not be able to procure petrol to fuel security service vehicles that keep the peace, and staff will begin to move to other work sectors.
A report issued by the Palestinian staff office mentions that the money frozen by Israel is partly comprised of general funds, while the rest is allocated to the salaries for 160,000 employees in Gaza on fixed incomes, as well as those who receive allowances, such as impoverished families and the families of martyrs and prisoners. The inclusion of these families brings the total number of beneficiaries to 200,000 Palestinians.
In an attempt to manage the financial crisis after Israel continued to withhold tax revenues, the government announced it would distribute 60 per cent of the salaries – the PA’s monthly income is about $50,000, while employee salaries amount to $215,000, meaning that the PA mainly relies on aid and grants to cover the current financial deficit.
The PA also resorted to taking out loans from local banks to pay the 60 per cent promised, while the other 40 per cent will be paid once it has enough liquid assets.
The PA also took measures to alleviate the impact of the withheld funds, which included giving employees with low salaries, i.e. salaries less than $500, their full salaries, while those with higher salaries received only 60 per cent.
Despite this, the decision to give employees 60 per cent of their salaries has impacted the entire purchasing activity in Palestine. Instead of finding a solution for the over 40,000 employees from Hamas’s previous government who are not receiving any percentage of their salaries, they added 160,000 more employees who only receive half of their salaries.
Finally, it seems that the PA is convinced that the crisis of the tax revenue freezing will not be solved until after the Israeli elections in mid-March. Moreover, any softening of the Israeli government’s decision against the PA will be used as election propaganda for those in the right-wing camp, which Netanyahu will not allow.
Therefore, the Palestinian situation will be prone to more economic crisis and a decline in living standards until the next Israeli government is formed in early May. This is a long period of time during which no one can predict the magnitude of its impact on Palestinians on the ground, whose economic situation is ever-changing and deteriorating from every angle.
Translated from Paltimes.net, 2 March, 2015
The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.