Palestinian Minister’s $4 Billion Tax Demand Highlights Crisis Amid Fragile International Support 

Facing a severe financial crisis that threatens its ability to govern, the Palestinian Authority has called on Israel to release $4 billion in withheld tax revenues, which constitutes 68% of its budget and has been held for six months, crippling basic services; while the EU has reaffirmed an €82 million support package at a recent donor conference, this aid is a stopgap measure against a systemic fiscal collapse, a situation further exacerbated by the PA’s declining public legitimacy, the devastating economic fallout from the war in Gaza, and a deeply flawed international peace plan, creating a tinderbox that risks total administrative failure and regional instability.

Palestinian Minister’s $4 Billion Tax Demand Highlights Crisis Amid Fragile International Support 

At a pivotal donor conference, a Palestinian minister revealed that the authority is operating without the majority of its revenue, putting governance and stability in the West Bank and Gaza at risk. 

Following the first meeting of the Palestine Donor Group in Brussels, Dr. Estephan Salameh, the Palestinian Minister of Planning and International Cooperation, issued a stark warning: the Palestinian Authority (PA) cannot function or provide basic services while Israel withholds $4 billion (€3.5 billion) in tax revenues it collected on the PA’s behalf . 

This financial stranglehold, which has lasted six consecutive months, deprives the PA of 68% of its revenue . The EU’s reaffirmation of an €82 million support package, while welcome, is a stopgap measure against a multi-billion dollar crisis that threatens to collapse the PA . 

A Financial Crisis Rooted in Occupation and War 

The current fiscal catastrophe stems from a combination of longstanding Israeli policies and the severe economic shock of the war in Gaza. 

The Withheld Tax Revenues 

Under the 1994 Paris Protocol of the Oslo Accords, Israel collects taxes and customs duties on goods imported into the Palestinian territories. It is then supposed to transfer these funds to the PA, making these clearance revenues the PA’s financial lifeblood . However, since April 2025, these transfers have stopped entirely . 

This is not a new tactic but an escalation. Between 2019 and April 2024, Israel had already withheld over $1.4 billion in Palestinian revenues . Finance Minister Bezalel Smotrich, a far-right politician, has openly stated that his goal is to collapse the PA, arguing, “If this causes the collapse of the PA, let it collapse…I will not artificially revive the PA so that it can work against me” . 

An Economy Already in Freefall 

The war in Gaza has devastated the entire Palestinian economy, creating a context where the withheld revenues are catastrophic. 

• Economic Collapse in Gaza: Gaza’s GDP plummeted by 81% in the last quarter of 2023, reducing its economy to less than one-sixth of its 2022 size. Between 80% to 96% of its agricultural assets and 82% of its businesses have been damaged or destroyed . 

• Deepening Crisis in the West Bank: The West Bank’s economy is also reeling, with an **unemployment rate of 32%**—a dramatic increase from 12.9% before the conflict. Some 306,000 jobs have been lost, resulting in an estimated daily labor income loss of $25.5 million . 

• Widespread Poverty: By 2022, even before the current crisis, 31.1% of Palestinians lived in poverty. Today, poverty affects nearly the entire population of Gaza and is rising rapidly in the West Bank . 

Table: Economic Indicators in the Occupied Palestinian Territory 

The EU’s Response: Solidarity with Limited Impact 

The inaugural Palestine Donor Group meeting, co-chaired by EU Commissioner Dubravka Šuica and Palestinian PM Mohammad Mustafa, brought together around 60 international delegations . Its aim was to align international support with the PA’s reform agenda. 

The EU confirmed €82 million in financial contributions from four member states—Germany, Luxembourg, Slovenia, and Spain—channeled through the PEGASE mechanism, which links funds to specific reforms and ensures financial oversight . This brings total contributions through PEGASE in 2025 to over €88 million . 

Commissioner Šuica emphasized that “not a single euro of European money has been spent on these contested payments,” directly addressing Israeli “pay for slay” allegations about a former PA program for families of prisoners and those killed . Minister Salameh reinforced this, stating that all aid is now based on 42 social criteria to prevent misuse and radicalism . 

Despite these efforts, the meeting failed to secure new financial commitments from non-EU countries, highlighting the limitations of international support . The EU itself did not pledge additional money beyond what was already announced . 

A Deepening Political Crisis and Public Discontent 

The PA’s financial crisis is unfolding against a backdrop of profound political dysfunction and a crisis of public legitimacy. 

A Vacuum of Leadership 

Public opinion polls reveal a population deeply disillusioned with its leadership. 

• Dissatisfaction with President Mahmoud Abbas is overwhelming, with 85% of Palestinians wanting him to resign . His satisfaction ratings stand at a meager 23% . 

• Trust in political factions is abysmal. A striking 68.5% of respondents in one poll said they do not trust any political faction at all . 

• While support for Hamas has declined from its peak, it still outpaces Fatah. In a potential legislative election, 44% would vote for Hamas compared to 30% for Fatah . 

The Disarmament Red Line 

Perhaps the most significant political challenge is the public’s stance on Hamas’s weapons. An overwhelming 70% of Palestinians oppose disarming Hamas, even if it risks a return to war . This sentiment is even stronger in the West Bank (80%) than in Gaza (55%) . This creates a major obstacle for the US-led peace plan, which envisions an International Stabilization Force tasked with disarming militants . 

An Uncertain Path Forward 

The road ahead for the Palestinian Authority is fraught with challenges, and the international community’s strategy remains a patchwork of insufficient aid and uncertain political plans. 

The “Reform Matrix” 

The PA is attempting to demonstrate fiscal responsibility through a detailed reform plan. Minister Salameh disclosed a “reform matrix” agreed with the EU, built around four main pillars and 53 specific milestones . He reported that 21 of these key milestones have already been achieved, with the rest scheduled for 2026 and 2027 . These reforms are intended to improve governance, stabilize finances, and build a more resilient economy. 

A Flawed Peace Plan? 

The recent UN Security Council resolution endorsing a US peace plan adds another layer of complexity. While Minister Salameh acknowledged it as a “good step forward” for prioritizing a ceasefire, he was highly critical of its specifics, calling the reference to self-determination and a two-state solution “very lame” and “not strong” . 

He highlighted a series of critical unanswered questions: “What laws are going to be applied in Gaza? Are they going to respect the property rights?… Who’s going to provide the basic services to our people… Who’s gonna issue passports?” . This vagueness fuels Palestinian skepticism, with 62% doubting the Trump plan will permanently end the war . 

The EU’s Strategic Dilemma 

The EU finds itself in a difficult position. It is the PA’s largest donor, having provided a total of nearly €30 billion since 1994 . Commissioner Šuica has openly stated, “We want to be players and not only payers,” arguing for a European role on the proposed “Board of Peace” . However, the bloc’s influence is limited by its inability to secure the PA’s primary source of revenue—the withheld taxes—and by the PA’s own deep-seated political weaknesses. 

A Precipitous Cliff Edge 

The call from Minister Salameh is more than a plea for funds; it is a warning. The Palestinian Authority, tasked with governing parts of the West Bank and being the international community’s chosen vehicle for a future Palestinian state, is being systematically starved of the resources it needs to exist. 

The $4 billion in withheld taxes is not a political bargaining chip but the salary for teachers, doctors, and security personnel, and the budget for essential services . As the PA’s economic crisis deepens, the pillars of stability in the West Bank are crumbling. The loss of 170,000 worker permits in Israel, soaring unemployment, and widespread poverty create a tinderbox of frustration . 

The international community’s aid, while crucial, is a temporary relief measure. Without a political solution that compels Israel to release Palestinian funds and without a credible, unified Palestinian leadership that can win the trust of its people, the PA’s collapse is a real possibility. Such an event would not only unleash chaos and further violence in the West Bank but would also extinguish the already fading hopes for a two-state solution, with profound consequences for the entire region.