The main problem is the precedent this sets: on device scanning is now possible.
Before this, if a government asked Apple to scan all the phones for something, Apple could say "we're sorry but we don't have the capability " and they could not be compelled by legal means.
Now, a large part of that argument has been eroded. Apple may have added in a few hurdles, but the first crucial step of on-device surveillance capability has been installed and is on path to being normalized.
It doesn't matter that they don't do this yet. We are undeniably closer to direct phone surveillance than we have been before.