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PA’s Fiscal Crisis Is Due to Gaza, Not Israel

The World Bank issued another report on the Palestinian economy yesterday, and its conclusions were utterly predictable: The Palestinian Authority faces a fiscal crisis, and desperately needs additional handouts on top of the $1.14 billion it’s already getting this year; and the crisis is mostly Israel’s fault. But while blaming Israel is always easy, the truth is the PA hasn’t a prayer of ever resolving its fiscal crisis without addressing the real elephant in the room: Gaza.

According to PA Prime Minister Salam Fayyad, Gaza accounts for fully 48 percent of the PA’s expenditures. But since Hamas took over the territory in 2007, revenues received from Gaza have plummeted from 28 percent to a mere 4 percent of the PA’s budget. In other words, the PA has a hole equal to 44 percent of its budget due solely to its unbalanced income and outlays on Gaza. Nothing Israel does will be able to compensate for that.

The problem is twofold. First, because Hamas controls Gaza, the PA can’t collect taxes there – and Hamas has no interest in giving the PA any of the taxes it collects. Often, Hamas doesn’t even pay the PA for services received: After the European Union stopped paying for Gaza’s electricity in 2010, for instance, the PA picked up the tab. In fact, that the PA receives any money from Gaza at all is mainly thanks to Israel, which transfers the taxes it collects on goods imported into Gaza from Israel.

Second, much of the money the PA spends in Gaza is totally wasted. Five years after Hamas took over Gaza, for instance, the PA is still paying some 60,000 former PA employees full salaries to sit at home and do absolutely nothing, just to keep them from working for the Hamas government instead. It’s hard to imagine a more unproductive use of money than that. And the sums involved aren’t trivial: Gaza accounts for 40 percent of the 150,000 people on the PA’s payroll, and payroll accounts for about half the PA’s annual budget of almost $4 billion.

Meanwhile, the party that’s de facto been picking up the tab for Gaza’s fiscal black hole is the same one that’s been under constant rocket fire from Gaza for years: The PA has solved part of its budget shortfall, which the World Bank estimates at some $400 million, by not paying its electricity bills to Israel. These unpaid bills now total $160 million – at a time when the Israel Electric Corporation is so far in debt it can no longer raise money without government guarantees, and has been seeking a 30 percent hike in Israelis’ electricity rates to solve its financial problems.

The PA’s international donors are slated to meet on September 23, and will doubtless be tempted to simply regurgitate the World Bank’s Israel-bashing. But if they really want to solve the PA’s fiscal crisis, they need to issue an ultimatum: Either the PA stops blowing half its budget on paying people not to work and subsidizing the Hamas government in Gaza, or its international donors will finally close the spigot.