Earlier this month, Israel’s new finance minister Bezalel Smotrich withheld just under $40 million of tax revenue that Israel collected on behalf of the Palestinian Authority (PA). Smotrich told reporters at a press conference that he is pursuing “justice” by transferring the $40 million to Israeli victims of terrorism.
PA Prime Minister Mohammad Shtayyeh called it “another nail in the Palestinian Authority’s coffin.” Smotrich, when asked whether withholding revenue from the cash-strapped authority could result in its collapse, responded: If the PA “encourages terror and is an enemy, I have no interest for it to continue to exist.”
Smotrich’s condemnation of the PA refers to Ramallah’s longstanding policy of paying generous monthly salaries to terrorists serving time in Israeli prisons, or to the families of those killed while attacking Israelis. In 2021, the PA spent more than $175 million on these payments, which critics have dubbed “pay-to-play.” The payments even increase for terrorists with more blood on their hands.
A 2018 Israeli law attempted to pressure Palestinian leaders to end pay-for-slay by requiring the Israeli government to withhold as much tax revenue as the PA spends on payments to terrorists. In an arrangement that dates to the 1993 Oslo Accords, Israel collects what are called “clearance revenues” (taxes, basically) on behalf of the PA. The International Monetary Fund estimates that Israel collected $2.9 billion of such revenue in 2021. This gives Israel considerable leverage since the money it transfers makes up the largest source of the PA’s income.
Smotrich’s declared lack of interest in the survival of the PA runs contrary to the traditional position of both Washington and Jerusalem, who prefer to prop up the PA because they believe its corrupt governance is still preferable to a power vacuum or a Hamas government in the West Bank.
The idea of applying financial pressure on the PA to end pay-to-slay was inspired by the horrific murder of a young American Army veteran in Tel Aviv and legislated by the U.S. Congress long before the law passed Israel’s Knesset.
The Taylor Force Act of 2018, which bars the U.S. government from providing aid that directly benefits the PA while the “pay-to-slay” program remains in effect, sought accountability for the murder of Taylor Force, a 28-year-old U.S. Army veteran and graduate of the United States Military Academy at West Point. A Palestinian terrorist stabbed Force to death while Force was touring Tel Aviv with his fiancée.
Israeli police killed the attacker, however, his family began receiving monthly payments equal to several times the average Palestinian wage through the PA Martyr’s Fund, the vehicle for pay-to-slay expenditures.
In response, 169 members of the U.S. House of Representatives co-sponsored legislation in Force’s name that prevents American taxpayer dollars from being sent to the PA and eventually becoming pay-to-slay payments.
The Taylor Force Act became law as part of a major appropriations act in 2018, with a handful of carve-outs for humanitarian projects including funding for a hospital network and child vaccinations. Presidents of both parties have respected the Act, contributing to the current fiscal crisis of the PA. But pay-to-slay remains in place.
After years of budget shortfalls and a $1.26 billion deficit in 2021, the PA has given Jerusalem reason to fear it is on the brink of collapse. With Iran-supported terrorist organizations — mainly Hamas and the Palestinian Islamic Jihad — sowing chaos in the West Bank, where violence has reached a 15-year high, the previous Israeli government decided that Israel’s security depended on continuing cooperation with the PA.
In 2021, the government of former Prime Minister Naftali Bennett found workarounds that took the bite out of the pay-to-slay law, such as granting the PA loans in an amount similar to the funds withheld. In short, previous governments prioritized the PA’s financial viability over holding it accountable for pay-to-slay. Now with Smotrich’s decision, Palestinian leaders will have to weigh the benefits of pay-to-slay against the pragmatic need for revenue to run their government.
Perhaps they can afford to hold fast. The funds subject to withholding constitute approximately six percent of the total revenue Jerusalem collects on behalf of the Palestinians. Yet it’s hard to know which straw will break the camel’s back with the PA already losing control of its domain.
There is no question that financial incentives for terrorism are reprehensible. Yet the weakening of the PA and empowerment of Hamas and Islamic Jihad could cost even more Israeli lives. The new Israeli government should strike a balance between justice and pragmatism.
To the extent it can, the White House should continue to push the PA to finally do away with pay-to-slay. But most importantly, Palestinian leaders must decide whether they are willing to risk the PA’s demise to maintain the program.
Enia Krivine is the senior director of the Israel Program and the FDD National Security Network at the Foundation for Defense of Democracies. Follow Enia on Twitter at @EKrivine.