My oldest label-papered rocket is 9 years old. They are stored in my basement, so have not generally been subjected to challenging environmental conditions. In any case, no problems so far.
A smooth shellacked surface would indeed be excellent for label adherence, but as
@mh9162013 says above it kind of defeats the purpose of low-effort papering.
My intuitive take, wholly unsupported by testing but consistent with my experience, is that:
1) if as much dust as possible is removed from the surface before applying the label paper, it'll adhere quite well to the balsa.
2) if the edges are properly sealed (and then covered with paint), it's a pretty stable sealed system. The edges can't left if they're all sealed down, and there's no way for air to get in.
Who knows, maybe at some point in the future my fins will all start peeling, but so far so good.