Zero tolerance laws/regulations trivialize the very actions they seek to remedy. Consider the boy suspended from school for bringing a GI Joe figurine to a school with a zero tolerance regulation against guns.
GI Joe!? That's going a bit far when you can be suspended for brandishing
triangular pastry.
Anyway, it's worth noting that the OP is in Australia and we have very strict laws here (whether you're aware of them or not in your local jurisdiction or whether you believe they're necessary is irrelevant) that
require people to report the
suspicion or
appearance of abuse. I haven't seen the image, can't say whether the lab overreacted but even if they totally did, the problem here is the police officer's reaction. Having decided that no crime had been committed and told you as much, the failure to return the image is an improper confiscation of goods. The police aren't allowed to just take shit off you because someone else had a moral panic, and you know that.
On behalf of all of us who use labs occasionally, I implore you to send a formal letter of complaint to the police headquarters in your state (it's a pretty easy process). Lay out, in completely unemotional language, that you had your private property confiscated and destroyed without due process and in the absence of any crime. The actions of the lab are irrelevant* here, so don't complain about them because it'll just make you look bad. As part of the complaint, I think you need to specify what your desired outcome is: I would request (if I were you) that formal procedures be put in place if they are not already and their following enforced regarding the treatment of people in your situation. You shouldn't have had to have heard from the police at all and you certainly shouldn't have lost your property. Likewise I would not push for disciplinary action against the officer as they were probably acting from ignorance and asking for punishment will just put the police examining your complaint on the defensive. You want to push against the process and the system, not the individuals unless the individual did something clearly criminal.
There have been quite a few cases (and therefore complaints) recently with police improperly bothering people photographing in public; in Australia, we have the explicit right to do so unless invading someone's privacy. As a result, there have been awareness campaigns within the police forces regarding the rights of photographers. Pushing back firmly and politely against the police failing to follow the law is what is required. Otherwise, we end up with rule by police instead of rule by law, which is pretty much where a few other western nations are headed. Thankfully, Australia is doing much better than others on that front, but please do your bit in pushing back, even if you take a week or two to gather yourself emotionally first.
* it doesn't matter if the lab is full of prying nannies. The police should have just said "it's fine, give it back". You can't train all lab operators with a fine sense of subtlety and context so their job is only to report, NOT decide your guilt. It's the police's job to ignore their reports when appropriate.