Isabel Kershner
The New York Times
January 31, 2012 - 1:00am

RAMALLAH, West Bank — For many Palestinians and their international supporters, the one bright spot in an otherwise dreary political landscape has been the nation-building efforts of Salam Fayyad, the prime minister of the Palestinian Authority, who has restored law and order and encouraged economic growth in the West Bank.

Salam Fayyad, prime minister of the Palestinian Authority, is under increasing pressure.

But over the past two weeks Palestinians have been taking to the streets here and in other West Bank cities to denounce Mr. Fayyad, protesting soaring prices and recently approved tax increases.

The tax changes have proved so unpopular that Mr. Fayyad has suspended their enactment until mid-February, pending the outcome of talks to resolve the matter.

Condemnation of the fiscal policies of Mr. Fayyad, a Western-educated economist and a political independent, has come from the private sector, the unions and Fatah, the mainstream nationalist movement that dominates the Palestinian Authority. Young protesters sat down in the center of Ramallah with posters bearing legends like “Starving.”

“If the policy does not change, the slogans will change. You remember what happened in Tahrir?” said Khaled Mansour, an activist of the socialist Palestinian People’s Party, who came to Ramallah from a refugee camp near Jenin, in the northern West Bank. He was referring to the square in Cairo where protests started last year and ended with the overthrow of President Hosni Mubarak.

Out of ideas about how to end the Israeli occupation, a growing number of Palestinians are already proposing the opposite: that the Palestinian Authority, an interim body set up in the 1990s to practice limited self-rule pending a final peace deal, should dissolve itself and hand the keys back to Israel.

“The authority defends itself by saying, ‘We are still under occupation,’ ” said Muhammad Hassouneh, 30, an air-conditioning contractor from Ramallah. “That is true, so they should dissolve themselves.”

The Palestinian Authority has suffered a worsening financial crisis over the past two years, a situation that Mr. Fayyad, who is also the finance minister, has been trying to address.

The rising prices are a function of global processes and more particularly the high cost of living in Israel, because the West Bank economy is intrinsically linked with Israel’s under the political accords of the 1990s.

The Palestinian Authority imports electricity from Israel, and monthly bills have doubled or even tripled since last winter, according to Salah Haniya, who runs the Palestinian Consumer Protection Society. The price of chicken has almost doubled in the last few months.

“It is related to Israel,” Mr. Haniya said, “but also to the policy of the Palestinian government, which refuses to introduce subsidies or increase salaries. Instead, it is increasing the taxes.”

Mr. Fayyad’s goal is to reduce the Palestinian Authority’s current budget deficit of $1.1 billion, and balance the budget, his government says. In 2011, the Palestinian Authority received $750 million in aid from foreign donors, and it does not expect to receive more than that this year, leaving Mr. Fayyad to try to make up a $350 million shortfall.

The new tax laws are intended to increase the Palestinian Authority’s revenues and reduce tax evasion, and are being coupled with austerity measures aimed at reducing expenditure, said Ghassan Khatib, a government spokesman. Talk of a forced early retirement plan for more than 20,000 public sector employees stirred such anger that it was immediately set aside.

The Palestinian Authority has introduced new tax brackets, doubling the taxation on the highest earners to 30 percent from 15 percent. Mr. Khatib said that only about 5 percent of Palestinians would fall into the high income category. The rest, he said, will not be affected. And even with the higher rates, taxation in the West Bank is still lower than elsewhere in the region, he said.

The demonstrations, he said, were partly a result of populism and a widespread misunderstanding that the price increases were caused by raised taxes.

But many Palestinians argue that the burden placed on businesses by the tax increases will inevitably be passed on to consumers. Moreover, they accuse Mr. Fayyad, normally considered a friend of the private sector, of stifling investment.

Ahmed Awaida, chief executive of the Palestinian Stock Exchange, said that a new capital gains tax could drive local and foreign investors away. Between direct and indirect taxes, Mr. Awaida said, Palestinians were being asked to pay “a Scandinavian level of taxation for a Somali level of government services.”

Mr. Khatib, the government spokesman, disagreed with that. The Palestinian Authority provides free education for a million schoolchildren and semi-free higher education, he said, as well as a social net for 96,000 needy families, including those of prisoners in Israeli jails.

The new tax laws were approved by Mr. Abbas, and one veteran political leader, Qadura Fares, a longtime critic from within the movement, offered Mr. Fayyad some rare praise.

“Fayyad at least has a vision, a strategy,” Mr. Fares said.

“He is thinking about how the Palestinian Authority can rely on itself,” he said. “The question is whether there is any deep dialogue going on within Fatah about how to deal with the economy. I do not believe that there is one.”

Other Fatah officials have distanced themselves from the unpopular measures.

The more common view in the West Bank is that with Israel fully controlling about 60 percent of West Bank land as well as the borders, Israel or the donor nations should pay for economic failures, and the Palestinian people should not have to shoulder the cost.

“Once we are independent,” said Mr. Awaida of the stock exchange, “we will not need a penny from anyone.”


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