The Tory party and its leader, Brian Pallister, filed the lawsuit following the tax increase, arguing it was illegal without consulting voters. The NDP government suspended the referendum requirement at the same time it introduced the tax increase.
The Conservatives argued in court last month that the NDP was bound by its own legislation to consult the public first and violated the Charter of Rights and Freedoms by not doing so.
Justice Kenneth Hanssen disagreed and ruled the tax hike was legal.
Governments have the "constitutional authority" to make their own laws, he said. Whether a government chooses to enact a bill retroactively is a matter of parliamentary privilege and can't be overruled by a court.
In fact, Hanssen said, "any attempt to transfer legislative power with respect to a money bill away from the Legislative Assembly to the electorate is inconsistent" with Canada's Constitution.
"There is no constitutional right to a referendum in Canada," Hanssen wrote. "I am satisfied the Charter imposes no obligation on a government to implement a referendum or to maintain a referendum it has previously established."
Government lawyers argued people were able to express their opinions through committee hearings and no court should be allowed to dictate what the legislature chooses to discuss. Pallister argued that once the referendum was written into law, it formed part of the "fundamental democratic right of all Manitobans," Hanssen wrote.
"Again, I do not agree," the judge said. "The Supreme Court of Canada rejected this line of reasoning."
Pallister said he and party lawyers will review the ruling over the weekend and will comment early next week.
"We're disappointed. We're not disappointed so much for us as we are for all Manitobans who are opposed to the PST hike, and that's, I think, just about everybody," Pallister told reporters late Friday afternoon.
The NDP government said it is not surprised by the ruling, adding it is "good news" for Manitobans.
"This decision means that the province's record level of infrastructure investments will proceed as planned," Matt Willamson, director of cabinet communications, said in an email.
"We find it regrettable that the PC party required the province to spend money on this case, and we hope Brian Pallister accepts the court's clear decision."
The government made an election promise not to raise taxes before it upped the provincial sales tax last July to eight per cent from seven. The New Democrats had to suspend a section of the balanced budget law that required a referendum on any increase to provincial sales, income or payroll taxes.
The Conservatives argued the NDP could have introduced a bill separately to sidestep that referendum rather than attach it to a budget bill, which required all government members of the legislature to vote in favour or risk toppling the government.
The NDP government has said it had to raise the sales tax to make important investments in infrastructure and called the lawsuit — funded by Conservative party donations — a partisan "stunt."