Combine that with the fact that government can't go bankrupt. If some department blows through way more money than it should either it just doesn't get it's job done or it gets more money. Pretty painless compared to what happens to a company that blows through a bunch of money without delivering results.

I wonder what would happen if government departments were allowed to go bankrupt?

Simply say "this is your budget for the year, if you spend more, we'll fire every one of you and sell the office".

And then hire an entirely new team of non-overlapping staff next year.