Why do you assume that removing ad tracking would cut down on the total amount of money made on ads? Companies will still have ad budgets and they'll have to spend it somehow.
Companies don't have "ad budgets". Those depend on the efficiency of the ads. If your $100M spending on ads only generates $50M in value, you won't spend it.
Advertising has diminishing returns, when you decrease the efficiency of advertising, you decrease the spending.
Another way to think about it: line up every marginal $ you could possibly spend in ads, and sort it by efficiency from max to min. Find the point where efficiency = 100% (spending $1 more generates $0 marginal profit).
As a company, you'd buy all the ads until that point.
When you lower the efficiency of the ads, the intersection moves, lowering the marginal returns, and resulting in lower ad spending.
Advertising has diminishing returns, when you decrease the efficiency of advertising, you decrease the spending.
Another way to think about it: line up every marginal $ you could possibly spend in ads, and sort it by efficiency from max to min. Find the point where efficiency = 100% (spending $1 more generates $0 marginal profit).
As a company, you'd buy all the ads until that point.
When you lower the efficiency of the ads, the intersection moves, lowering the marginal returns, and resulting in lower ad spending.