Australian standard-setting process failed
There is no safe level of PM2.5 pollution (or indeed PAH).  NZ calculated the health costs of PM2.5 pollution and imposed much stricter standards, notably a limit of 1.5 g/kg on all woodheaters installed on blocks less than 2 ha.  Areas where woodsmoke builds up have even stricter regulations.  In Otago, heaters emitting 0.7 g/kg or less are allowed as replacements for more polluting heaters, but new houses and houses currently without woodheaters are not allowed to install them.  Moreover, heaters with emissions ratings greater than 1.5 g/kg must be removed by 1 Jan 2012.

Attempts by the joint Australian/New Zealand Standards Committee to set similar limits fell foul of the principle that all sectors have to agree before a standard can be changed.  In early 2007, the Standards Australia Committee Meeting minutes state: "The committee agreed to a reduction to 3.0 g/kg with the majority further in agreement that 2.0 g/kg was more appropriate."
They voted 15:4 to halve the emissions limit to 2 g/kg, but since 2 of the 4 votes against the change represented 50% of formal wood heating industry votes, the changes could not be adopted.

Another change that was apparently vetoed was a requirement to install temperature sensors in fan-assisted models.  Lab tests showed that many models produced copious amounts of smoke if the fan is used on low-burn.  The Standards Committee recommended a $2 temperature sensor to detect inefficient burning and switch the fan off to stop the fire smoking and smouldering.  This important and necessary change was apparently vetoed by the woodheating industry.

NZ concluded that this process was inadequate some years earlier.  Instead of being dictated to by industry, NZ chose to protect the health of its people by regulation.  Christchurch imposed an emissions limit of 1.5 g/kg in January 2000, with proposals to adopt 1.5 g/kg for all woodheaters installed in urban area in October 2003These proposals became law in September 2005.

Why self-regulation failed to protect us from woodsmoke
In a series of papers in Clean Air and Environmental Quality, Prof John Todd discusses why the current system of self regulation in Australia fails to protect our health. 
1)  When audited, emissions of many popular models bore no relation to lab-test emissions in the audit.  Prof Todd's research program in 2005 required purchase of four woodheaters. Laboratory tests showed that three of the four did not meet the emission standard, demonstrating significant non-compliance two years after the National Audit.
2) real-life emissions are much higher than the lab test results - on low-burn particle emissions can be 7 to 8 times higher than the AS4013 rating
3) The industry body owns the test lab, participates in the auditing process and was allowed to veto changes to the Australian Standard despite a 15:4 vote that the emissions limit should be halved
4) The next generation of woodheaters must be 1 g/kg or less to achieve acceptable air quality in areas with a high proportion of woodheaters and ideally we should aim for a further order of magnitude to 0.1 g/kg.

The NSW Action for Air (2009 update, page 53) also comments on failures to comply.
In 2007 the NSW Department of Environment and Climate Change inspected 18 retail outlets, all of which had at least one woodheater that did not comply with NSW regulations

Most heaters currently installed in Australia are so polluting that, in areas of NZ where woodsmoke builds up, they would have to be removed within a few years, e.g. by 1 Jan 2012 in Otago.  Rather than continue to allow such sub-standard models to be installed, in many cases with health costs of several thousand dollars per heater per year, there should be a moratorium on the installation of new woodheaters in Australia until an appropriate health-based standard has been developed.

Similar problems from self-regulation affect other industries, e.g. unflued gas heaters also cause health problems, but they still continue to be installed in people's homes and even schools.  If these problems were better understood, it seems likely that most people would choose to pay the additional cost of a flue.