Palestinian Israel Tax Freeze
Israeli Prime Minister Benjamin Netanyahu has agreed to end a tax transfer freeze on the Palestinian Authority (PA). The Israeli government collects and transfers about $125 million each month to the PA, but cut them off last December after the PA was accepted into the International Criminal Court. Israel now plans to release the several months’ worth of revenue that it had previously withheld.

The freeze in tax transfers hit the Palestinian Territories hard. The economy was already in a recession, with unemployment at 25 percent and a budget deficit of 15 percent of GDP. The PA was then forced to cut public sector wages by 40 percent. Tax transfers account for 70 percent of the Palestinian Authority’s revenue and the freeze pushed the region to the brink of collapse.

Palestine’s stock market has contracted by 10 percent since this time last year. The Palestinian Central Bank had warned there was an imminent risk of a major financial crash. Hospitals reported a shortage of medicine and equipment.

The Israeli government cited the humanitarian crisis and the threat of increased instability in the West Bank as its primary reasons for resuming tax transfers. The Palestinian Authority had warned it was unlikely to survive for much longer without tax revenue. Israeli military officials had also warned that the Palestinian Authority was at risk of collapsing and disbanding.

The Israeli military also warned that the freeze was fueling instability and extremism and was a threat to Israel’s national security. Officials had previously recommended that the government end the freeze to prevent the spread of instability in the already unstable region.

This is good news for the West Bank, which has long struggled with high rates of poverty. The resumption of tax revenue will help to alleviate this and lesson the effects of the ongoing economic crisis. But since the Palestinian Authority is set to officially join the ICC on April 1, relations with Israel will remain strained and the threat of a future transfer freeze still remains.

– Matt Lesso

Sources: BBC, The New York Times, The Wall Street Journal
Photo: Wall Street Journal