According to the communist manifesto, the point you mention should be put into effect during the transitory phase from capitalism to communism, where the State gathers the power in order to then build a class-less, state-less society.

That is just a mean to reach the final goal, and it does not mention labor camps or anything like that.

I'm curious on which communist government are you talking about, since pretty much all the "communist" revolutions so far did not actually implement communism but state capitalism (as Lenin himself said), except for some libertarian communist revolutions (e.g. revolutionary Catalogna, Ukraine) that were then defeated militarily.

On one thing I agree with you though, which is that putting all the power into the state is not a good way to achieve communism, as it is dangerous and it pretty much never worked so far.