For the second consecutive month, the Palestinian Authority (PA) is suffering a serious financial crisis after Israeli occupation authorities withheld tax revenues in apparent revenge for the PA's overtures to the UN Security Council and membership of the International Criminal Court (ICC). Palestinian analysts and politicians believe the PA's financial crisis will remain hostage to Knesset elections, slated for 17 March, and the formation of a new cabinet. Until then, PA leaders are trying to find alternatives to end the crushing pressure, either by borrowing from local banks or asking for an Arab financial safety net to be activated. They believe it is unlikely Israel will continue its punitive measures against the PA after parliamentary elections because the collapse of the PA would be a huge economic, legal and economic burden on the occupation. Israel quickly moved to use financial blackmail against the PA after Palestinian President Mahmoud Abbas signed on 31 December 2014 membership agreements to join 20 organisations and international treaties, most notably the Rome Statute that established the ICC. This came hours after the UN Security Council rejected an Arab resolution demanding the end of Israeli occupation of Palestinian land by the end of 2017. Binyamin Netanyahu's government decided in early January to freeze 500 million shekels ($125 million) of tax revenues belonging to the PA that was collected in December. A few days ago, it once again decided to withhold January taxes worth 400 million shekels ($100 million), which affects the salaries of thousands of Palestinian civil servants. Israel's financial piracy did not force Abbas to retreat from joining the ICC, and he has continued to challenge Israel's punitive measures. Early this week, Abbas issued a decree to form a National Supreme Committee, made up of Palestinian factions and human rights activists, to liaise with the ICC. Speaking at the inauguration of the new headquarters of the Radio and Television Corporation in Ramallah, Abbas said: “The PA has the right to go to the ICC and will not compromise or retreat from joining the ICC in return for Israel releasing tax revenues.” He added: “It is impossible for the status quo to continue. We will go everywhere we can and sign up. We are demanding a right, and it is not Israel's prerogative to withhold the funds.” This is not the first time Israel has withheld Palestinian tax revenues, and likely will not be the last. This illegal form of collective punishment was repeated in 2005, 2006, 2007, 2011, 2012 and 2014 in response to diplomatic or political events on the Palestinian scene, whether regarding reconciliation between Hamas and Fatah, or stripping the legitimacy of the occupier by joining UN organisations. Taxes are the backbone of Palestinian domestic revenues, without which the government cannot meet its commitments. Israel collects these funds on behalf of the PA for imported and exported goods and services from and to Palestine through international borders. They average more than $170 million a month, with Israel receiving three per cent of the revenues as a collection fee. This revenue amounts to 36 to 44 per cent of the PA's annual budget of $3.88 billion and is the largest single source of income for the PA's treasury, even more than direct assistance from foreign donors. Palestinian finance ministry figures show that “clearance revenues” rose to $2.05 billion in 2014 from $1.691 billion in 2013, or by 17.6 per cent. Palestinian officials say the PA is currently looking for alternative sources to pay salaries, including borrowing from local banks to cover the shortage, to be repaid once the withheld money is released. They are also trying to activate the Arab financial security net. Foreign Minister Riyad Al-Malki said the government was forced for the second consecutive month to borrow from banks operating in Palestine. They were able to pay 60 per cent of civil servant salaries for January. Speaking to official Palestinian Radio, Al-Malki said it is likely that the PA will initiate legal procedures against Israel, after researching how effective such a step would be. He added that resorting to legal procedures is vital so Israel understands “we are serious about this matter.” Said Al-Malki, “We are in contact with all world countries and their institutions to continue putting pressure on Israel to release our funds.” There are about 170,000 PA employees in the Palestinian territories (West Bank, Gaza Strip and Jerusalem). The payroll is estimated at $160 million to $170 million every month. Palestinians are calling for more Arab support to overcome Israel's actions, based on a decision at the Arab summit in Kuwait in 2010 that created an Arab financial security net worth $100 million monthly, to be activated if Israel puts financial pressure on the Palestinians by withholding tax revenues. The Palestinian government said it would be taking steps to overhaul economic ties with Israel in response to the economic sanctions that are intermittently imposed on the PA. Deputy Prime Minister and Economy Minister Mohamed Mustafa said in newspaper statements that withholding tax revenues is a clear breach of the Oslo Accords and Paris Protocol regulating economic ties between the PA and Israel. “We are looking into the possibility of rescinding the Paris Protocol because it is a threat to the Palestinian economy, its progress and financial conditions.” The Paris economic agreement between the Palestine Liberation Organisation (PLO) and government of Israel was signed in 1994 and is an addendum to the Oslo Accords that created the PA. According to economists, the agreement on trade between the PA and occupation authority has restrained the role of the PA and prevented it from taking control of Palestinian natural resources and border crossings. It also linked the weak Palestinian economy with Israel's strong and rapidly growing economy, which is ranked as one of the best economies in the world by the World Bank. The agreement stipulates the creation of a joint tariff union whereby Israel collects dues on goods going to PA areas and value-added taxes (VAT) on large Palestinian purchases from Israel, and indirect taxes on gasoline. These revenues would then be handed over to the PA monthly. Mustafa said that continuing to withhold funds is a clear breach of international law, “and therefore we must take all necessary measures to guarantee Palestinian rights and protect the national economy.” In turn, the IMF expressed concern over the repercussions of Israel's decision to freeze the transfer of tax funds, warning that the PA would not be able to contain the crisis longer than a few months. At the end of a visit to Ramallah between 21-29 January to assess economic developments in the West Bank and Gaza Strip and the PA's financial situation, the IMF issued a statement asserting that tax revenues represent a pillar of the Palestinian economy and withholding them could compound the current financial crisis. The IMF warned that the situation might become intolerable, with rising threats of social turmoil and strikes that may lead to political instability. It called on Israel to pay the funds to ease these threats, and urged the world community to increase assistance to the PA. It also noted that the Palestinian economy shrank by one per cent in 2014, the first time since 2006, as a result of Israel's assault on the Gaza Strip last summer, and growing political tensions in the West Bank and East Jerusalem. Israel's war on the Gaza Strip caused the economy there to shrink by 15 per cent in 2014. The economy in the West Bank, meanwhile, grew by 4.5 per cent in 2014, although there was a “sharp slowdown” in the third quarter that year. The IMF said unemployment rates remain very high, at 41 per cent in Gaza and 19 per cent in the West Bank.
