Nov. 22 (Bloomberg) -- Brazilian President Luiz Inacio Lula da Silva's popularity rating fell to a record low as probes of alleged government graft eroded voter confidence in the former union leader, a survey by Instituto Sensus said.

Lula's personal popularity rating fell to 46.7 percent, the lowest of his almost three years in office, from 50 percent in September, according to the poll of 2,000 Brazilians between Nov. 14 and Nov. 17. The poll also showed for the first time that he would lose to Sao Paulo Mayor Jose Serra in a runoff presidential vote next year.

Lula, 60, will have to boost spending on projects such as roads, sanitation and hospitals to increase his chance of winning re-election next year, said Cristiano Noronha, a political analyst at Brasilia-based Arko Advise. The president may give in to ministers such as Cabinet Chief Dilma Rousseff who have called for faster release of budget funds, making it harder to keep the surplus before interest payments above the targeted 4.25 percent of gross domestic product, Noronha said.

``From a political point of view, things are not looking good for Lula,'' Noronha said in a telephone interview. ``If he wants to be re-elected, he can't withhold spending so much.''

Lula's finance minister, Antonio Palocci, is under fire from Rousseff for freezing funds to help cut the budget gap and lower the country's net debt from $430 billion, the biggest among developing nations. Palocci's efforts lowered the budget surplus excluding interest payments this year through September to 6.1 percent of GDP, almost 2 percentage points above the target, compared with 5.4 percent over the same period last year.

Healthy Debate?

Lula said yesterday the ongoing debate within his cabinet over economic policy could ``only improve'' the implementation of government measures to bolster growth.

``There is space in my government, space like we've never had before, for ministers to have different thoughts,'' Lula said in a speech at the presidential palace in Brasilia yesterday. ``But there is also a moment when that debate will be turned into public policies of the government, and when that happens that is when the debate ends.''

Palocci, 45, told lawmakers on Nov. 17 Rousseff was mistaken to say earlier this month that efforts to eliminate the budget deficit were ``rudimentary.''

The minister told lawmakers today that he deals with conflicts on economic policy with ``serenity.''

``Conflict about economic policy and government opinion have existed since 2003,'' Palocci told a lower house committee today. ``I live with them in serenity.''

Damaging Allegations

Lula's government is also under attack by lawmakers for allegations of graft within his government and ruling party. The accusations, under investigation by a congressional probe, surfaced on June 6, when former lower house deputy Roberto Jefferson said members of Lula's Workers' Party paid off legislators to support bills and financed campaigns illegally.

The president said in an interview to TV Cultura on Nov. 7 that his party never paid bribes to legislators. The ruling party said in statements that some of its members may have broken campaign financing laws without the knowledge of the party's managing board.

Today's Sensus poll commissioned by the National Transport Confederation, a lobby group, also showed that 72.6 percent of Brazilians believe Lula's chances in a re-election bid will be hindered by the graft allegations.

Popularity ratings below 50 percent make it difficult for any candidate to win a presidential election, Ricardo Guedes, chief executive of Sensus, said in a news conference today.

``Historically, a candidate with a popularity rating below 50 percent never won,'' Guedes said. ``It's hard to imagine a re-election.''

Government Approval

The poll, which has a 3 percentage-point margin of error, showed that Serra would win a runoff against Lula by 41.5 percent to 37.6 percent.

Lula's government approval rating fell to 31.1 percent, the lowest since June, 2004, from 35.8 percent in September, the Sensus poll said.

Datafolha pollster said Oct. 23 that Lula's approval rating fell to a record low of 28 percent in a survey conducted between Oct. 20 and 21 from a previous record of 31 percent in Aug. 10.

To contact the reporter on this story: Carlos Caminada in Brasilia at at ccaminada1@bloomberg.net

Last Updated: November 22, 2005 13:47 EST