It is over production.

If a manufacturer sells out the entire production, it means that they've missed potential sales. They could have produced and sold more, so that's what they're going to do for next season.

When a company has over production, they won't just drop the price to hand off the products. To some degree they do, in outlets and other off season sales that don't interfere with the main sale. But even then, there's a lower limit to how cheap they can sell it off without damaging their perceived price point. Wholesale buyers are not going to buy from a brand that can't keep a high enough price for the retailers to earn money on the markup. The price must be artificially kept up by not making the products available too cheap on the main market. The result is that some items just don't ever get sold out, only because the product has lost its resale value. That's over production.

Budgets go up, because the owners want more. If they had owners who were satisfied with making less money consistently, they could easily adjust their production to the demand and settle for that steady income. But they want more, so they will always attempt to sell more.

What EU is doing now is to force the manufacturers to pay for the damage of their overproduction. The solution for the companies to avoid this is to figure out their actual sales better and/or make on-demand production. On-demand production of textile is difficult, because even fast fashion has a pipeline of about a year, and they need to know well in advance how much textile they need to make the products. A solution to that is to forget about fast fashion and make products that are sold over several seasons instead, and by using more basic textiles in their designs instead of printed patterns that only have appeal for a very limited time.