FINANCE Minister Tendai Biti's pro-poor budget might have brightened the faces of some poverty weary Zimbabweans but analysts warn that, without an increase in capital expenditure, very little economic growth can take place. Biti projected an economic growth of seven percent next year driven by mining agriculture, manufacturing and tourism.

Expenditure is projected to hit US$2.250 billion while taxes are expected to rake in US$1.440 billion in revenue. The balance will be met by budgetary support from multilateral and donor institutions.

Announcing the 2010 budget on Wednesday, Biti offered a modest tax relief to workers by reviewing the tax free threshold to US$160 per month effective January from US$150.

It is a modest review by any standards considering that the civil service constituting the bulk of the workforce is earning in the region of US$150 and US$200 in monthly salaries.

Statistics unveiled by Biti show that it is a long way before Zimbabwe moves from a consumption economy.

As of October, Value added tax (VAT) contributed 39% of total revenue.

Customs duty weighed in with 26% while Pay as you Earn (PAYE) and corporate tax contributed 15% and 4% respectively.

This means that revenue was driven by consumption with little production.

The health status of any nation is measured by looking at the contribution of PAYE and corporate tax to revenue.

"It's not good for an economy and it shows that we are being driven by indirect taxes," an economic analyst with a commercial bank said.

Although Biti cut corporate tax to 25% from 30% in the 2010 budget, analysts contend that without an improvement in the so-called enablers- water supplies and power supplies- capacity utilisation cannot rise to expected levels and it means that very little will go to government coffers through corporate tax.

But others contend that the slash of the tax itself attracts other investors into the economy and this will boost treasury coffers with corporate tax payments.

Biti's pro-poor budget was premised on reconstruction, equitable growth and stabilisation all designed to bring back the cheers on the faces of the "submerged and drowning poor" which he said constitute 85% of the population.

However, vote allocations were below the international and regional benchmarks.

For instance the 2001 Abuja Declaration by African leaders pledged to allocate at least 15% of the total budget on health.

Biti's allocation of US$285.4 million is 12.7% of the budget.

This means that health allocation is below the Abuja declaration.

However, this is the first time that health's allocation has come within three percentage points short of the 2001 declaration.

Analysts were also worried about the mismatch between recurrent and capital expenditures.

The ideal situation should be 75% and 25%. But the 2010 budget makes for sad reading.

Capital expenditure constitutes only eight percent. They argued that water and power supplies have disappointed when it mattered most and thereby slowing the wheels of growth.

"A government that fails to increase its capital budget does not promote investment," said Witness Chinyama who is the group economist at Kingdom Financial Holdings Limited.

He said the business sector needs an enabling environment to operate and this must be reflected in the capital budget.

Water and power supplies are erratic and analysts say they were the weakest link in cranking up capacity utilisation.

"As a developmental economy the ideal situation should see more resources devoted to capital expenditure," an analyst said.

Analysts say the huge wage bill is anti-development at a time resources should have been channelled to boost the economy.

With civil servants' salaries including pensions taking up 63% of the total expenditure as at October, it means there was a crowding out effect as other requirements scrambled for the remaining 37%.

Analysts say the civil service salary bill is unsustainable and they hope the ongoing audit will reduce the bill if it flushes out ghost workers.

Biti's budget also delivered a killer blow to the struggling vehicle assembly industry.

By slashing duty to 25% from 40% to enable young professionals to buy cars, Biti inadvertently left the struggling car assemblers at the mercy of cheap imports.

This is likely to trigger retrenchments which goes against his thrust of brightening the faces of the 85% submerged and drowning poor.

The extension of the moratorium of duty on basic commodities to July 31 means that prices remain in check and inflation will be within the 5.1% percent target at the end of 2010.