Israel's far-right Finance Minister Bezalel Smotrich said Thursday he had ordered that about $35 million in tax revenue collected by Israel on behalf of the Palestinian Authority be diverted to the families of Israeli victims of terrorism.
Smotrich said: Decision to divert funds In a social media post, he called for “justice,” saying the amount was based on a court ruling to pay compensation to the families of terrorism victims. “The Palestinian Authority encourages and supports terrorism by paying terrorists, prisoners and the families of released prisoners,” he wrote.
Two laws came into force earlier this month allowing victims of terrorism and hostilities to claim Palestinian funds, making Smotrich's action on Thursday possible.
The move further endangers an already embattled West Bank-based Palestinian Authority that is in severe economic difficulty and could further inflame tensions in a region where conflict has soared and the quality of life for Palestinians has deteriorated since the Oct. 7 Hamas-led attack on Israel sparked war in Gaza.
State Department spokesman Matthew Miller called Smotrich's decision “extremely ill-judged” and said the Biden administration had made clear to the Israeli government that “these funds belong to the Palestinian people.” Speaking at a news conference in Washington, Miller said Smotrich's order “threatens to destabilize the West Bank and further undermine Israel's own security.”
Under decades-old agreements, Israel collects customs duties and import taxes on the Palestinian Authority, revenues that make up the bulk of the Palestinian budget, especially at a time when international aid has declined.
Smotrich, who has called the Palestinian Authority an “enemy,” has used his power over the authority's finances to worsen the region's already struggling economic situation and withhold financial aid from the Authority.
Before October 7, about 150,000 Palestinians living in the West Bank worked in Israel on a daily basis, but since the war began, Israel has imposed a total ban on their employment, leading to a sharp rise in unemployment in the West Bank. Although some Israeli companies have been granted exceptions, the ban has led to a labor shortage in Israel and worsening economic hardship for Palestinians.
Without funds to pay the salaries of security forces and other government employees, experts warn, the Palestinian Authority's economic problems could lead to further destabilization in the West Bank and Israel.
In May, Smotrich said he would withhold tax revenue from the authorities after Ireland, Norway and Spain recognized a Palestinian state and the International Court of Justice announced it would seek arrest warrants for Israeli Prime Minister Benjamin Netanyahu and Defense Minister Yoav Galant over the war with Hamas in Gaza. Smotrich has accused the Palestinians of using “political terrorism” against Israel on the international stage.
The finance minister also warned that by the end of June he would withdraw compensation given to Israeli banks that transfer money to West Bank financial institutions – a safeguard that ensures Israeli banks are not sanctioned for terrorism ties – which could discourage deposits into Palestinian accounts, including funds from Israeli companies that work with the Palestinian Authority, further destabilizing the Authority and the West Bank.
The recently appointed Palestinian Authority Prime Minister, Mohamed Mustafa, warned last month that the dire financial situation was leading to a “very serious situation” in the West Bank.
Mustafa met with European Union officials on Thursday for the sixth EU-Palestine Investment Platform. According to Palestinian media, he said Israel's seizure of tax revenues was a major challenge and called on European allies to help on the issue.
Michael Levenson Contributed report.