Israel halts Palestinian tax transfer over UN bid

Israeli finance minister says the money will be used to pay Palestinian Authority's debt to their electricity company.

JERUSALEM: Israel will not transfer tax and tariff funds its collects for the Palestinians this month in response to their successful bid for upgraded UN status, Finance Minister Yuval Steinitz said on Sunday.

"We said from the beginning that the raising of the status of Palestine at the UN would not produce no reaction from Israel," Steinitz said at the beginning of a weekly cabinet meeting.

"I have no intention of transferring the taxes due to the Palestinian Authority this month. They will be used to pay the Palestinian Authority's debts to the Israeli electricity company," he said.

Israel's Haaretz newspaper said a total of 460 million shekels ($120 million, 92.7 million euros) would be withheld from the Palestinians.

The move comes after the Palestinians secured non-member state observer status at the UN General Assembly last week, winning approval in a 138-9 vote over fierce opposition from Israel and the United States.

Israel has already announced new settlement construction in the wake of the vote, in what was widely considered a punitive response to the bid.

Ahead of the vote, Israel's government had warned the Palestinians and the international community that it would react harshly to upgraded status for the Palestinians, accusing them of leapfrogging negotiations and disregarding peace accords.

The Palestinians say the upgraded status does not contradict any effort for new talks, pointing out that negotiations have been on hold since late September 2010.

They ground to a halt shortly after they began over the issue of settlement construction. The Palestinians want a freeze on all settlement activity before talks resume, but Israel wants negotiations without any preconditions.

Every month, Israel transfers tens of millions of dollars in customs duties which are levied on goods destined for Palestinian markets that transit through Israeli ports, and which constitute a large percentage of the Palestinian budget.

The transfers are governed by the 1994 Paris Protocols with the Palestinians.

But Israel often freezes the transfer of the funds as a punitive measure in response to diplomatic or political developments viewed as harmful.

The freezes have contributed to an already dire financial position for the Palestinian Authority, which has frequently been unable to make payroll for its employees in the last year.