Actually that is the budget AFTER Paramount cut it drastically and left Shatner virtually nothing to work with.
why did they cut the budget.why did they sabotage shatner's effort.why would a studio shoot itself in the foot?
These things are budgeted on a cost-versus-expected-return basis, and unfortunately that sometimes becomes a self-fulfilling prophecy. Paramount lowballed the movie because they had no confidence that it would make enough money to justify a higher budget.
Meyer nearly cried in a budget meeting when the suits did the same thing to ST 6 - he was memorably told "This is a business, if you want love go home to your family." They were essentially saying that they didn't expect much out of the movie and were therefore unwilling to invest much in it.
As to why such projects aren't simply killed outright - beats me.