Ending standoff, Norway accepts Israeli framework for transferring tax revenues to PA

Scheme will give Smotrich control over when a quarter of the funds are released by Oslo to Ramallah, but sides appear to have heeded pressure from US, which feared PA’s collapse

Jacob Magid is The Times of Israel's US bureau chief

Palestinian Authority Prime Minister Mohammed Shtayyeh meets at the headquarters of the Munich Security Conference with Norwegian Foreign Minister Espen Barth Eide on February 18, 2024. (Wafa)
Palestinian Authority Prime Minister Mohammed Shtayyeh meets at the headquarters of the Munich Security Conference with Norwegian Foreign Minister Espen Barth Eide on February 18, 2024. (Wafa)

Norway has agreed to help facilitate the transfer of the Palestinian Authority’s tax revenues that Israel has been withholding from Ramallah, Oslo announced on Sunday, in a framework aimed at providing vital funding to the cash-strapped PA.

Under interim peace accords reached in the 1990s, Israel’s Finance Ministry collects tax revenues on behalf of the PA and makes monthly transfers to Ramallah, but a dispute broke out over the payments in the wake of Hamas’s October 7 terror onslaught.

The Israeli cabinet refused to transfer the portion of the funds that Ramallah uses to pay for services and employees in Gaza, arguing that the money could reach Hamas. The roughly $75 million in revenues amounts to about a quarter of the entire monthly transfer.

Protesting the move, the PA has refused to accept any of the tax revenues, which make up the vast majority of the PA’s annual budget. Unable to pay its employees in full for months, the move has risked Ramallah’s complete financial collapse.

While the PA’s dissolution would ostensibly put Israel on the hook for providing services to some three million Palestinians in the West Bank, Jerusalem — led by far-right Finance Minister Bezalel Smotrich — has largely refused to budge.

Last month, the cabinet approved a framework under which the Gaza portion of the funds would be transferred to Norway, which would then be required to hold onto the funds until Smotrich signed off on their release to the PA. The cabinet decision bars those funds from ever being sent to Gaza and risks the permanent cessation of all future transfers if that restriction is violated.

Finance Minister Bezalel Smotrich leads a faction meeting at the Knesset, Jerusalem, January 29, 2024. (Yonatan Sindel/Flash90)

Israel hoped the new framework would be enough to convince the PA to resume accepting the West Bank portion of the funds in order to pay the majority of its employees.

The weeks that followed saw Oslo hold talks with the PA, Israel and the US as it weighed whether to accept Jerusalem’s framework. While it would strip a portion of the tax revenues from Israel’s grasp, it also would give significantly more authority to Smotrich, who in the past has not shied away from expressing his desire to see the PA collapse.

The Biden administration has all but accused Israel of theft for withholding the funds that belong to the PA, but the US also wants Ramallah to govern Gaza after the Israel-Hamas war and pressured the sides to accept the Norwegian framework, officials told The Times of Israel.

Norway’s Sunday announcement indicated that this pressure worked.

“This [scheme] is critical to promoting stability in the region and for the Palestinian Authority to have legitimacy among its people,” Norwegian Prime Minister Jonas Gahr Stoere said in a statement announcing the move, adding that the PA had agreed to the “temporary” scheme as well.

“Ensuring that the PA does not collapse and can provide essential services to the population is vital to safeguarding the very existence of the Authority, promoting a political process and realizing a future two-state solution,” said Foreign Minister Espen Barth Eide, who discussed the matter earlier Sunday during a meeting with PA Prime Minister Mohammed Shtayyeh, the latter’s office said.

US Secretary of State Antony Blinken (left) and Palestinian Authority President Mahmoud Abbas shake hands during their meeting in the West Bank town of Ramallah, February 7, 2024. (Mark Schiefelbein/AP)

The announcement came less than two weeks after senior Israeli security officials held a covert meeting with their counterparts from the Palestinian Authority in Tel Aviv to discuss efforts to calm tensions in the West Bank ahead of Ramadan, which begins around March 10.

A senior Western diplomat familiar with the discussions told The Times of Israel said the Israeli security officials indicated that Jerusalem would be willing to offer more flexibility regarding the tax revenues.

The PA held talks with the United Arab Emirates and Norway about Abu Dhabi or Oslo offering Ramallah a monthly loan to compensate for the withheld funds, a senior Western diplomat told The Times of Israel last month. But Israel blocked the PA from advancing with the loan idea, threatening to withhold the entirety of the tax revenues, the diplomat said.

While the Gaza portion of revenues typically makes up $75 million or 25 percent of the monthly transfer, it has been far lower since the outbreak of the war, as the enclave’s economy ground to a halt.

The Israeli officials at the Tel Aviv meeting indicated that Jerusalem would be willing to lower the amount of the Gaza revenues it would demand be sent to Norway each month, the diplomat said.

It was not immediately clear whether Israel ultimately followed through with this proposal.

Reuters contributed to this report.

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