Any miracle working creator God would always create for the best possible end of what he creates.
He created them and gave them the free choice. Justice is demanded. The wrong-doer cannot be like the good-doer in the outcome.
If all he can do is created something he has to condemn and punish then he is an incompetent creator.
He does not only punish, but His forgiveness and mercy is more than His punishment. So He is a Most Merciful to believers and Terrible in punishing His enemies.
A king will punish a criminal to protect his other subjects. A God in heaven has no one to protect,
Justice is mandatory, even in heaven; so that all His servants will not dare to do any disobedience, because they saw that with their sight: the severe punishment of the idolaters and wrong-doers.
Man may need to punish but if God does, that means he is the failure and not what he is said to create.
It is not like this, but: God does not wrong anyone: that is by increasing the deserved punishment or decreasing the deserved reward.
God does not need to wrong anyone, unlike the tyrants: they make use of the wrong-doing and oppression; because only the weak is in need of using the wrong or the oppression. While the All-Powerful is not in need to oppress others.
Moreover, you have invented some religion other than what God revealed and made your own philosophies not according to God's religion (this is specially obvious in Christianity which has become very much different from the heavenly religion and more or less like the idolatry and the non-heavenly philosophy.)
So where is the "chattering of teeth" if God does not punish?
And Jesus - salam to him - said to his disciples: "Pray lest you may fall in the trial."
So who makes them fall in the trial? and who brings about such trial on them, other than God?
And where is the God-fearing which is very much stressed in the Torah like in the first sentence of the Book of Wisdom of Solomon: The head of wisdom is the God-fearing.
So if He does not punish, why is the fearing of Him?
And if God does not punish (I hope for His forgiveness and mercy), then people will be careless: because it is all the same whether you transgress on others or you give charity!