Missed specialisation opportunity with phantom type class parameter?

I am unsure of my analysis of this code fragment. It seems like we could do a better job optimising test3. First the code, then the analysis at the bottom.

{-# LANGUAGE MultiParamTypeClasses #-}
{-# LANGUAGE FunctionalDependencies #-}
{-# LANGUAGE FlexibleInstances #-}
{-# LANGUAGE FlexibleContexts #-}
{-# LANGUAGE RoleAnnotations #-}
{-# LANGUAGE IncoherentInstances #-}
module Foo where

data Proxy a = Proxy

--type role Phantom phantom nominal

class Phantom x a | a -> x where
  method :: a
  method1 :: a

instance Phantom x (Proxy x) where
  method = Proxy
  method1 = Proxy

-- This doesn't optimise

test3 :: Phantom x (Proxy x) => Proxy x
test3 = method

-- This does optimise

instance Phantom Char Int where
  method = 5
  method1 = 5

test4 :: Phantom x Int => Int
test4 = method

Here is the relevant part of the core

-- RHS size: {terms: 4, types: 9, coercions: 0}
test3
test3 = \ @ x_ayL $dPhantom_ayS -> method $dPhantom_ayS

-- RHS size: {terms: 3, types: 5, coercions: 0}
test4
test4 = \ @ x_ayz _ -> $cmethod1_az4

In test4 the dictionary selector method is eliminated but in the analogous case test3 where x is used in both arguments then method is not specialised. It seems that we could do a similar specialisation and ultimately replace the dictionary with Proxy as x is phantom.

Trac metadata

Trac field	Value
Version	8.0.1
Type	Bug
TypeOfFailure	OtherFailure
Priority	normal
Resolution	Unresolved
Component	Compiler
Test case
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CC	danharaj
Operating system
Architecture