In-Depth: The Political Economy of a ‘Salaries Massacre’

On April 8, the Gaza Strip witnessed the largest demonstration in recent memory after thousands of public sector employees converged in central Gaza City to protest the surprise implementation of mass cuts to their salaries – cuts ranging from 30 to 70 percent of take-home pay. Demonstrators called for the firing of the Government of National Consensus led by Prime Minister Rami Hamdallah, and demanded repeal of the decision, locally referred to as the “salaries massacre” (Arabic).

The wage cuts affect approximately 55,000 public sector employees in Gaza (both civil servants and security personnel), paid for by the Palestinian Authority (PA) in the West Bank. It does not affect 120,000 public sector employees in the West Bank itself however.

The reason for this complicated arrangement dates back to 2006, in the wake of Hamas’ victory in the Legislative Council elections, when all non-essential Palestinian Authority personnel working in the public sector in Gaza were ordered by their paymasters in Ramallah not to serve the new Hamas governors. The ensuing service gap forced Hamas to hire its own staff to fill local administrative offices, an estimated 45,000 employees who are not impacted by the wage cut. Thus, a split public sector emerged with a set of employees paid for by the PA in Ramallah, through donor budget support, Israeli VAT transfers and local taxation; and a second financed by Hamas in Gaza through the movement’s own revenue streams – local taxation, and international support from Qatar, Turkey, and the Muslim Brotherhood’s networks.

Of course using the term ‘governance’ to describe the Palestinian powers administering Gaza or the West Bank is a misnomer, because the term implies a freedom to devise policy that is not actually afforded to either under the terms of the Oslo accords, which reserve most real power for the Israeli occupier. Nonetheless, both political powers and their institutions are able to exercise forms of local administration within varying degrees of limited autonomy, while Israel of course remains the de facto sovereign power, whose prerogatives can ultimately trump all those exercised by the Palestinians.

This necessary clarification nonetheless fails to explain why the PA in Ramallah would go to the length of cutting the incomes of its own Gaza base, nor why it would choose to do so ten years after ensuring that this constituency was paid regularly, irrespective of the tasks they performed.

A cartoon depicting the Salaries Massacre.

The pay cuts will have enormous financial implications for the already dire economic and humanitarian situation of the Gaza Strip, home to nearly 2 million people where 80% of residents are dependent on food assistance programs, 39% live below the poverty line, and 42% are unemployed – the highest rate in the world. Indeed, the International Crisis Group has already described the humanitarian situation in the Gaza Strip in August 2015 as “the worst since Israel conquered the territory in 1967.” With only 26% of the Gaza population fully employed, the massive cuts represent a drastic reduction in income for the OPT’s most vulnerable population. Moreover, according to the Palestinian Central Bureau of Statistics, far higher percentages of people are employed in the public sector in Gaza (39.6%) as opposed to the West Bank, (16.5%). The average daily wage is also considerably lower in Gaza than it is in the West Bank, standing at 84.7 Israeli shekels (US$23.1), compared to 107.8NIS (US$29.5).

Given these massive economic and humanitarian implications for Gaza, what is the reason for the PA’s seemingly counter-intuitive decision that has only alienated its base of loyal supporters in Gaza?

THE POLITICS OF GAZA’S ‘ECONOMIC BURDEN’

A public sector employee carries a sign that reads “Gaza is not a burden” while protesting the Palestinian Authority decision to cut his salary by at least 30%.

The answer lies in the devious institutional, political and economic arrangements established by donors and Israel as a function of the Oslo peace process in 1993.

The ostensible justification provided by Prime Minister Hamdallah is that the cuts only affected supplementary governmental allowances, not base salaries, and that these were needed to “manage financial crises suffered by the Palestinian government due to reductions in international funds.” Hamdallah also claimed that international financial support for the PA has shrunk 70 percent compared to previous years, compelling the PA to decrease expenditures by 25 percent.

But critics across the political spectrum quickly rebutted this line of argument pointing out that if ‘austerity’ was the true reason behind the pay cut, then there was no reason why Gaza public sector employees should bear the burden alone. Fateh Palestinian Legislative Council member, Majed Abu Shammaleh, for instance, retorted (Arabic) that the Gaza public sector constitutes less than a third of the total number of employees employed by the PA – 55,000 of roughly 175,000 employees. Moreover, the public sector wage bill stands at approximately US$170 million per month, of which Gaza costs roughly US$41 million, together with an additional US$9 million paid in pensions and allowances to families of martyrs, prisoners and the injured. Meanwhile, the Gaza strip also substantially contributes to Value Added Tax (VAT) revenues originating from expenditures in Gaza, which Israel collects and redirects into PA coffers – sums totaling a monthly average of US$91 million for 2014. Gaza does not benefit from these sums, a fact that Hamas has repeatedly described as a form of tax theft by the PA government in Ramallah.

To better understand where Gaza stands amidst the economic challenges facing the PA, the graph below is illustrative, highlighting select financial data from the PA’s Palestinian Monetary Authority (Arabic) since the geopolitical split took place 10 years ago.

What the graph demonstrates is that external support from donors to the PA budget has indeed declined over the years, despite relative jumps in 2008 and 2012/13. At the same time however, the total revenues the PA enjoys has risen to its highest levels in history. The increase in governmental revenue clearly has to do with steady increases in financial contributions from local tax revenue, including Israeli VAT transfers, and is aided by decreases in payments for social spending to cover the electricity costs of the most poor, primarily in refugee camps (“net lending”). While expenditures on wages have also moderately increased in recent years, this increase cannot be attributed to expenditures on employment in Gaza, which has witnessed a hiring freeze since 2006. It should also be noted that despite the PA enjoying increasing net revenues, it is also increasingly indebted to banks, with government debt also rising to near historic highs.

The graph thus illustrates an important conclusion. Even though donor money did indeed decrease, the PA in Ramallah is actually enjoying historical highs in its revenue streams thanks to improved means of tax collection, more consistent VAT transfers from Israel, including those generated in Gaza, but directed to Ramallah, and cuts to social spending. Therefore, the choice to cut salaries in Gaza cannot be regarded as a measure of austerity. Indeed, the decision is political.

DONOR POLITICS AND PALESTINIAN AUTHORITY FINANCE

Cartoon depicting a cheerful Palestinian Authority President Abbas while Gaza is drowning.

What then accounts for a political decision of this magnitude?

The answer again goes back to the institutional, political and economic arrangements established by donors and Israel as a function of the Oslo peace process in 1993.

Two sets of cascading political dynamics are taking place: the first is between Western donors and the PA in Ramallah; the second involves intra-Palestinian struggles between Fatah and Hamas, as well as within Fatah itself as the leading party of the PLO and the PA.

Let’s start with the first dynamic, which is the more important of the two, as it has structural and strategic implications with direct, and perhaps deliberate down-stream effects on the Ramallah PA, and Fatah in particular.

In February this year, the European Commission (EC) quietly announced that the European Union (EU) was changing its policy on budgetary support, and would no longer pay the salaries of PA employees in Gaza. Up until then, the EU was allocating 300 million euros annually to the “occupied Palestinian territories” (OPT), dividing this sum into 200 million euros for PA employees’ salaries and support to economic projects, and 100 million euros to the United Nations Relief and Works Association (UNRWA). After the EC’s decision however, the European tranche of funding designated for Gaza’s public sector employees will now be used to support the payment of social allowances to Palestinian families living in poverty, through the PA’s Social Development Ministry, together with additional economic development and infrastructure projects in the Gaza Strip.

It is important to emphasize that this significant but largely unrecognized shift in EU funding is political as opposed to financial.

While it is true that regional upheavals have eclipsed the immediate political significance of Palestinian affairs with respect to EU regional policy, the EU nonetheless has ‘tolerated’ paying the wages of public sector employees in Gaza for ten years, with no obvious political or financial justification for shifting policy now.

The EU is still, after all, paying the same amounts to the PA in Ramallah, but it is forcing a political redirection of its finances so that the PA is squeezed to use its excess revenue to pay for the Gaza wage bill itself.

This maneuver is tantamount to a silent putsch when seen in light of the arc of broader historical trends.

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Before the Oslo Accords, the Gaza work force used to be heavily reliant upon employment in the Israeli labor market, because few meaningful economic opportunities could be created in Gaza as a result of Israel’s larger strategic policies of actively de-developing the OPT. However after the Oslo process and Israel’s subsequent policies of imposing closure on the OPT, Gaza’s labor force was forced to find refuge within Gaza itself, despite the fact that de-development remained in place, and the economic promise of the Oslo peace process was never realized. This forced the PA to use public sector employment as a way to absorb the legions of Gaza’s unemployed, resulting in exaggerated numbers of public sector employees there (more than double the figures for the West Bank). This situation has been maintained ever since, including after the 2006/7 geopolitical split when it was well known that Gaza’s public sector employees, paid for by Ramallah through donor funding, were not fully working, or working at all. More accurately, they were working by not working. Hence, the donor shift is not a shift towards a new found fealty towards ‘efficiency’ per se, but is a political shift to attempt to institutionally and financially lock the PA into self-financing the structurally generated forced unemployment and disenfranchisement of Gaza’s labor force.

The political nature of the EU’s finance shift is further underscored by understanding what actually lies behind Israel’s policies of closure and unilateral disengagement from Gaza, which ultimately created and entrenched Gaza’s bloated public sector. While Israel claimed that these policies were driven by its security prerogatives, they were in truth consistent with Israel’s broader historical and settler colonial policies of selective integration and separation from OPT lands, which have driven Israeli approaches since 1967. The financial costs of these Israeli policies, were hence first leveraged on to the Western donor-backed PA, and are now being leveraged further onto the PA itself.

THE MACHIAVELLIAN CIRCLE

If Israel and donors can now force the PA to pay the bulk of the wage bill by itself, they will have succeeded in completing a Machiavellian circle whereby the PA is forced to pay for the deliberately disenfranchised and unemployed Palestinian labor force generated by Israel’s enforced selective separation from the OPT, otherwise known as apartheid. Meanwhile, the PA has very limited means of generating alternative economic revenue sources due to enforced de-development. The result is a state of permanent servitude and dependency, with Israel and donors enjoying the commanding heights, and the PA acquiescing to a permanent neo-colonial institutional arrangement birthed from the cyclical impetus for self-preservation.

Donor aid and policies, together with Israeli selective separation policies, have already led to having different representatives, political ideologies, tactics, strategies, and financial sources in the Gaza Strip and the West Bank. But, while Israel has for years approached the OPT in a manner that seeks to separate the Gaza Strip from the West Bank, leveraging this effort within intra-Palestinian politics has always been resisted by the PLO and PA. Most donors have also maintained a position of exclusively recognizing the Ramallah PA politically, and financing it alone as its partner in managing the Palestinian question.

But both positions may now be changing as the managerial logic of donor interventions into the conflict cascades downhill, overriding the impetus to seek a real political resolution.

By refusing to pay for Gaza public sector employees, donors reversed a commitment to the PA to keep its appendages in Gaza afloat, and abandoned the large Fatah patronage base that inevitably lies to varying degrees behind the wage bill. This signals that this constituency is no longer viewed as expedient to donor designs, as alternative actors and channels may now be sufficiently available through which to operate – be these NGOs, INGOs, private sector actors, and local municipalities – and perhaps even one day Hamas itself.

Furthermore, by allowing this decision to trickle downstream into actual cuts to its Gaza public sector employees, the PA, led by Abbas, is signaling that it too has internalized the political division between Gaza and West Bank.

WHAT’S IN IT FOR THE PA?

Right, Mahmoud Abbas, President of the Palestinian National Authority. Left, Ismail Hanyieh, former Prime Minister of the Palestinian National Authority and a senior political leader in Hamas.

Abbas sees the use of financial and political leverage – the very lives of his support base in Gaza and the larger economic well-being of Gaza – as legitimate cards in his power struggle with Hamas. He sees this as his only means of enforcing political influence and representation there, especially in light of the shifting political economic realities and precedents of ten years of Hamas rule.

Recollections (Arabic) of recent meetings of Fatah’s Central Committee depict a leader increasingly frustrated with his decreasing relevance to Gaza, and the concomitant resiliency of Hamas governance over the territory, including the decision to form a body of its own to govern Gaza, which lies outside the West Bank-based National Consensus Government. Hamas insists on maintaining its autonomy in Gaza, and implements its project on the ground, while demanding implementation of a complete reform package from the PA and PLO. This autonomy frustrates Abbas because he understands that it allows Hamas to consolidate its power over Gaza, while considerable portions of social spending in Gaza are actually paid for by ‘his’ government and donors. In his eyes, this gridlock frees Hamas from bearing the responsibility for the cost of its actions, and allows the movement to focus on realizing political achievements in its larger strategic agenda – building a capable military infrastructure, and organizing society in a way which entrenches its grassroots grip.

By refusing to pay Gaza public sector employees, Abbas also believes that he can save precious money that can be used by the PA locally in the West Bank.

Cutting public sector salaries, hence, became one of the few trump cards that Abbas feels he still has to hold Hamas in check. It also ensures that he maintains a flexible margin of policy space to accommodate his actions, buoyed by the surplus revenue generated by the PA, including Gaza’s VAT revenues, and the cutting of the ‘financial burden’ of Gaza. Abbas has further threatened (Arabic) additional “unprecedented steps” against Hamas, exercised through the additional financial streams that the PA still oversees there, in particular payment of fuel fees for the electricity generator as well as parts of the Israeli-generated electricity Gaza consumes (net lending). In this way, Abbas uses the economic well-being of his own constituency as pawns against his political rivals, fearing the latter are on the brink of eclipsing the political and institutional unity of the PLO and its monopoly over legitimacy and representation. Abbas’ inability to assert political power over Gaza would, thus, reveal a broader political insignificance of his rule and status amongst donors, as the heretofore overseer of the Palestinian question overall.

Abbas is not mistaken in regard to his observation that Western donors are on a slippery slope to de facto, if not de jure, recognition of Hamas. Despite their publicly professed boycotting of the Hamas government, donors already directly or indirectly deal with the movement on the ground, given the latter’s effective ‘monopoly on the use of violence’ in Gaza and its ability to tax every aspect of life there.

Hamas has also proven itself politically, administratively and financially resilient, despite years of siege, three major military assaults against the territory, and no direct financing from Western donor governments.

Moreover, as far as donors are concerned, Mahmoud Abbas is 82 years old, and has no clear political successor. That successor is expected to be weaker than Abbas, as the competing tendencies amongst the next generation of Fatah leaders divides the movement, making it unable to produce a unifying and effective public leader. Additionally, Abbas’ strength in Gaza has been significantly reduced over ten years, while his archrival within Fatah, Mohammed Dahlan, remains relatively stronger there – thanks in no small part to Hamas tolerating his activity there.

What we thus witness are donor attempts to leverage Abbas in his moment of weakness, to chalk up important strategic, institutional accomplishments for the donor community and Israel: either Abbas agrees to pay the Gaza sector employees from his PA’s coffers, which would institutionally and financially lock the PA into paying for the financial and administrative burden of Israeli apartheid policies, while eliminating the policy margin the PA currently enjoys through a modicum of financial solvency; or, if he refuses to pay the Gaza wage bill, donors will inevitably deepen the divide, ignoring any political representation of the PA and the PLO in Gaza, and choosing instead to operate there through an assortment of actors such as the UN, support for the private sector, and local municipalities, while Hamas taxes every stage of the game.

WHAT LIES AHEAD?

A man and child contemplate the destruction of their neighborhood in the summer of 2014 during Israel’s offensive, known as Operation Protective Edge.

In this context, it goes without saying that the net impact of these dynamics on the strategic positioning of the Palestinians in their struggle vis-à-vis Zionist settler colonialism is decidedly bleak.

Israel and international donors have shown themselves able to leverage the financial and administrative burdens created by the contradictions between Zionist settler colonialism and the Palestinian quest for freedom, into secondary intra-Palestinian political and class conflicts. In this way, an international colonial-like division enforcing divide and conquer politics envelopes the pre-existing Israeli settler colonial-enforced divisions, which physically fragment the OPT, and divides and rules in its own stead.

Meanwhile, internal domestic rivalries over institutions, turf, and finance threaten to lock Fatah and Hamas into a collectively dysfunctional political arrangement. As the entrenchment of the political and institutional division gets deeper, so too will the path dependency of each, and the respective political economic and cultural (Arabic) expressions this entails. The impetus for self-perpetuation and survival will inevitably preoccupy each constellation, as each determines how precious human and financial resources will be invested. In this way, a gridlocked, Palestinian political status quo fully crystallizes, while developing the political, institutional and financial seeds of its own perpetuation and collective ineffectuality.

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About Toufic Haddad 1 Article
Toufic Haddad is the author of "Palestine Ltd. Neoliberalism and Nationalism in the Occupied Territory," published by I.B. Tauris. He recently completed his PhD in Development Studies at the School for Oriental and African Studies (SOAS) in London. His doctoral research focused on the political economy of neoliberal approaches to conflict resolution and statebuilding in the Occupied Palestinian Territory from 1993-2013. He just completed a postdoctoral fellowship with the Arab Council for Social Sciences, working on "the Political Economy of Siege and Resilience in the Gaza Strip.

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