(Corrects paragraphs 1, 2, 6, 7, 8 to show new rules go into effect in November if approved by Congress, not immediately)
BRASILIA, July 25 (Reuters) - Brazil's government unveiled a sweeping proposal to change its mining code on Tuesday, which would boost royalties in the latest move to reduce a budget deficit amid a sluggish recovery from the country's worst recession on record.
Royalties for iron ore will rise to as much as 4 percent, depending on market prices, from 2 percent currently, according the mining ministry website. The new rules, which will go into effect in November if Congress approves them, include the creation of the National Mining Agency to oversee the mining industry.
"Brazil lagged behind in the royalties it charged," Mining Minister Fernando Coelho Filho said at the event where the new rules were unveiled. These also included plans to shorten wait times for mining licenses.
"These measures will be fundamental to accelerating the speed of growth of the Brazilian economy," he added.
Brazil's slow economic recovery has weighed on tax revenue, forcing the government to find new sources of funding. Last week, the government said it would raise taxes on fuel and increase a public spending freeze by 5.9 billion reais ($1.9 billion) this year.
The proposal, which will require approval by Congress within 90 days, jump-starting reforms to mining regulations dating from 1960 that have languished in the legislature for years.
The rules would also raise gold royalties to 2 percent from 1 percent, while hiking diamond levies from 2 percent to 3 percent.
The measures would also increase fines for environmental damage up to a ceiling of 30 million reais ($9.47 million) and expressly require companies to clean up degraded areas, in the wake of the Samarco mining disaster in November 2015.
In that instance, a tailings dam burst at the mine owned by Samarco, a joint venture between Vale and BHP Billiton, unleashing enough mud to fill 12,000 Olympic swimming pools and killing 19 people.
($1 = 3.1692 reais) (Reporting by Anthony Boadle and Jake Spring; Editing by Brad Haynes and David Gregorio)