According to a report by the Associated Press just published in Haaretz, Israel’s “Finance Minister Yuval Steinitz says he is delaying a cash transfer to the Palestinian Authority because of a new unity deal between rival Palestinian factions. Steinitz says he will hold up the transfer of $89 million in Palestinian tax funds and customs fees that Israel collects on the Palestinians’ behalf. Steinitz told Army Radio on Sunday that the money was supposed to be transferred this week but would remain in Israeli hands until it was clear it would not reach the militants of Hamas”. This story is published on the Haaretz website here.
The Fatah-Hamas reconciliation announcement was made in Cairo last Wednesday evening (about 12 hours after a second attack on a pipeline carrying Egyptian natural gas to Israel which has caused a second disruption in supplies to Israel, which receives about 40% of its natural gas from Egypt. The terms of the contract are highly concessionary, with the gas being sold to Israel — and apparently to Jordan as well — at prices substantially below the actual market price. The new Egyptian government has said it will take another look at the terms of the contract, also causing concern in Israel.)
The details of the reconciliation agreement have not yet been published in full. The signing ceremony is scheduled to take place in Cairo on Wednesday.
See our initial report on the reconciliation agreement here.
However, immediately after the surprise announcement of the Fatah-Hamas reconciliation agreement, Israel’s Prime Minister Benyamin Netanyahu said in a televised address to his nation that “The Palestinian Authority needs to choose between peace with Israel and peace with Hamas”.
Netanyahu said on Sunday, at the start of the weekly Israeli cabinet meeting, that “The agreement that was initialed recently between Hamas, which calls for the destruction of the State of Israel, and the Fatah movement, must concern not only every Israeli, but all those in the world who aspire to see peace between us and our Palestinian neighbors. Peace is possible only with those who want to live in peace alongside us and not with those who want to destroy us. Israel extends its hand in peace to all peoples of the region, to all of our neighbors that aspire to live alongside us in peace, and will stand steadfast against whoever tries to attack us and endanger our existence”.
The U.S. has said that its contributions to the PA will continue for the moment, but will be reviewed after formation of a new PA cabinet in which Hamas is asking for some key ministerial posts.
The tax refund payments are an outcome of arrangements made in the Oslo Accords signed between Israel and the Palestine Liberation Organization (PLO) in 1993. These tax refund payments were supposed to finance the costs of the Palestinian Authority (PA) established in the occupied Palestinian territory under the Oslo Agreements — but now make up only one-third or one-fourth of the Palestinian budget [depending on how you calculate the budget].
Donor funding provides another one-third or so of the PA budgetary needs — including particularly but not exclusively all salary and pension costs for some 180,000 PA employees in the West Bank and Gaza (most of those ordered to stay home and not work for Hamas) and security forces in the West Bank. Some one million people are estimated to be dependent on these salaries.
Israel withheld these tax payments at various other moments, notably after Hamas won the majority of seats in the PA Parliament, the Palestine Legislative Council, in January 2006 elections.
International donors also withheld all contributions to the PA after the Hamas victory in the January 2006 elections, and did not restore funding until Palestinian President Mahmoud Abbas created a Hamas-free government in the immediate aftermath of a Hamas rout of Fatah/PA Preventive Security Forces in Gaza in mid-June 2007.
PA employees were not paid for a year and a half — and do not want to imagine a return to the difficulties they faced then. At the time, the PA arranged for its employees to take bank loans, but the PA did not pay the interest costs, which were put on the responsibility of the employees.
The story of Israel’s decision to hold up the tax transfers broke early Sunday morning by a report in the largest-selling Hebrew-language Israeli paper, Yediot Ahronot.
Didi Remez posted a link on Twitter (@DidiRemez) to an English-language translation of the Yediot article on Scribd, here.
According to this translation, the Yediot story, written by Itamar Eichner and Smadar Peri, reports that “Finance Minister Yuval Steinitz has instructed Finance Ministry officials not to attend a meeting that is scheduled for today with the Palestinian official responsible for Value Added Tax in the Palestinian Authority. At the end of that meeting, Steinitz was supposed to approve the transfer of NIS 300 million to the PA. That sum is comprised of money that Israel collects on behalf of the PA for customs, VAT and other tax payments, as stipulated in the Oslo Accords — which established a uniform ‘customs envelope’ for Israel and the PA. The taxes, which come to between NIS 3.5 to NIS 5 billion a year, account for two-thirds of the PA’s budget. Steinitz also instructed his aides not to attend a meeting that is scheduled for Wednesday at the Allenby Bridge, where the parties were to discuss the Palestinians’ request to change the method of payment and interest rates to the Israel Electric Corporation. Steinitz decided to cancel the meeting after holding consultations with Prime Minister Netanyahu and others. In closed meetings, the finance minister was heard to say that Israel needed to see where the Palestinians were headed and had to ensure that the Palestinians were not heading down a road of terror and non-recognition of Israel. Steinitz said that in such a case, Israel would absolutely not be able to transfer money to the PA, since the funds were liable to end up in Hamas’s hands. Last Thursday Steinitz was invited to the meeting of the forum of seven that discussed the possibility of imposing economic sanctions on the PA for its alliance with Hamas”.
After the Yediot story appeared, a Reuters account of the report was published here by the Jerusalem Media and Communications Center in Ramallah. The Reuters report said that “Israeli Finance Minister Yuval Steinitz said he had suspended a routine handover of 300 million shekels ($88 million) in customs and other levies that Israel collects on behalf of the Palestinians under interim peace deals …
Israel had threatened sanctions last week in response to Palestinian President Mahmoud Abbas’s surprise announcement of a unity deal with Hamas that envisages the formation of an interim government and elections. The tax transfer mechanism provides Abbas’s Palestinian Authority, which exercises limited self-rule in the West Bank, with $1 billion to $1.4 billion annually — two-thirds of its budget. ‘If the Palestinians can prove to us … that there is not a joint fund between the Palestinian Authority and Hamas in Gaza, I believe that we will reconsider the matter’, Steinitz said”.
The Reuters story was updated with a comment from “A senior Palestinian official in the occupied West Bank” who “condemned the move, saying Israel had no right to withhold Palestinian funds”. According to the Reuters report, “Asked about Israel’s decision, Saeb Erekat, a senior Palestinian official, said: ”Israel has started a war even before the formation of the government’.”