Written by: Mohammad Abdallah Khbesa

The Palestinian government's announcement of transferring the wages of Palestinian workers within the Green Line through the local banking sector opened the door once again to a government crisis with more than 180,000 workers. The issue of wage transfer, which has been debated for more than 7 years, pressures the relationship between Palestinian workers within the Green Line and the government, of which the vast majority refuses receiving wages through banks. This refusal reminds us of the crisis of the "Social Security Law," which ignited disputes between the civil and private sectors on the one hand, and the government on the other, that ended with the suspension of the law, amid the lack of confidence in the government as a guarantor of social security funds.

Before delving into Palestinian and Israeli interests from the decision to transfer workers' wages through the Palestinian banking sector, it is important to know the reality of Palestinian labour within the Green Line. Data from the Palestinian Central Bureau of Statistics indicate that there are 211,000 workers in the Green Line and settlements built on the lands of the West Bank, with 183,000 workers in the Green Line and 29,000 workers in settlements, until the end of the second quarter of 2022.

The average wage for Palestinian workers in Israel is 272 ILS per day, with a monthly average of more than 1.43 billion ILS, or 17.1 billion ILS annually, which is a large number compared to the total wage of the Palestinian public sector. The Palestinian public sector wage (employees, retirees, semi-salaries) is 945 million ILS per month, according to the Palestinian Ministry of Finance’s data, distributed amongst 245,000 beneficiaries. Currently, the percentage of Palestinian workers in the Green Line who receive their wages through banks does not exceed 7% of the total number of workers, according to the data of the Palestinian Monetary Authority. For the most part, the relationship between employers and workers is based on the payment of wages in cash at the end of each working week, which enters the occupied Palestinian territories through the workers themselves.

Palestinian Justifications:

The Palestinian government believes that disbursing wages through the local banking sector would reduce cash in local markets, and thus reduce the shekel accumulation crisis in the West Bank’s markets. The shekel accumulation crisis is one of the sources that weaken the financial performance of banks operating in the local market (13 local and foreign banks), with an annual value of 18 billion ILS on average. Israel refuses to transfer the accumulated shekel even though the currency belongs to the Bank of Israel (Central), exceeding a ceiling agreed upon between the two sides, which amounts to 16 billion ILS annually.

Likewise, the Palestinian government justifies its decision, as it will be a means of eliminating permits, a justification for which the government did not provide any details because the two cases are not related to each other. But what the government did not announce is that transferring the wages of Palestinian workers in the Green Line would provide it with a database that it did not have until today, related to the exact amount of workers’ wages, the average wage of each worker, and most importantly, the income tax withheld by Israel. This database may be used by the current or future government to impose a tax on those wages, at a time when the Palestinian Authority is facing a severe financial crisis, the worst since its establishment. With the assumption of an income tax of 5% on the income of every Palestinian worker in the Green Line and the settlements, what the government will earn from this tax annually exceeds 850 million ILS.

Another important issue is that the government’s insistence and promotion of transferring workers’ wages through banks come in conjunction with a package of laws that the Council of Ministers is developing, most of which are linked in one way or another to enhancing the financial revenues of the public treasury, which raises doubts amongst workers about the government’s intention behind this transfer. The Palestinian Monetary Authority was clearer about its desire to transfer workers' wages through banks, as it believes that the decision will enhance financial inclusion, and open the door for banking products and services to workers.

The average monthly wage of a worker is not less than 6000 ILS, which makes him a target for credit facilities and banking products. Most importantly, exempting workers’ wages from any commissions or fees, may not be forever, because each bank account carries operational burdens on the bank, and therefore this exemption may be temporary for the purpose of motivating workers to disbursing their wages through banks.

Israeli Justifications:

The Israeli side is less enthusiastic about the issue of transferring the wages of Palestinian workers through banks, but it believes that the decision will increase the fight against tax evasion there, and increase the transfer of funds from the shadow economy to banking channels. Thus, every shekel will be under the eyes of the tax authorities.

The second issue is facilitating the work of the second phase of the “Locker” law to reduce cash transactions inside Israel, which entered into force this August, and which prevents individuals from buying or providing any amounts of more than 6,000 ILS in cash.

Although the process of transferring the salaries of Palestinian workers to the banks is a positive step for the worker and the national economy, especially in ensuring the rights of the worker and limiting the process of extortion and permits, the rejection of the Palestinian workers within the Green Line for the decision to transfer wages, due to their lack of confidence in the Palestinian government, even if the latter is sincere in its efforts to regulate the labor market for its citizens within the Green Line, they fear the imposing of taxes on their wages.

The opinions expressed in this article are the views of the author and not necessarily the opinion of the Association or donor.