"There is no point in trying to distinguish incompetence from malice when it directly benefits the party committing the error."

You need to treat it all as malice.

This seems like a very reasonable standard when the power of the state is being wielded.

It applies at all times. Given that it's very easy to disguise your behavior as incompetence, it doesn't make sense to give the benefit of the doubt to people who do something that gives them a huge payout. Trying to forgive the incompetent people while punishing the malicious ones just brings you a huge epidemic of mysteriously incompetent people.

But what if it's not about punishment, but prevention?

The usual formulation I hear is:

"Never attribute to malice that which can be adequately explained by stupidity. But don't rule out malice."

"Never attribute to malice that which is adequately explained by carelessness."

Unless that malice is aimed at keeping an individual out of trouble rather than harming others.

It only applies to physical persons, not to groups.